International arbitration in South Africa
In a recent SCA judgment the principle that parties consenting to arbitration should have their dispute heard in arbitration and that the courts should refrain from interfering in this was reaffirmed.
In the matter of Zhongji Development Construction Engineering Company Limited vs Kamoto Copper Company SARL (2014) JOL 32421 (SCA), it was stated that our courts need to respect the arbitral process in order to encourage more litigants to conduct international arbitrations in South Africa as this would encourage increased economic activity on our shores. This is also an imperative, as described by the court, as South Africa is a party to the New York Convention on the Recognition of Foreign Arbitral Awards together with various other treaties with similar effect. This duty of our courts to support international arbitration is also given effect to by the recognition and enforcement of the Foreign Arbitral Awards Act 40 of 1977.
The court in Zhongji specifically referred to the case of Bank Mellat vs Helsinki Techniki, which was decided in the English Court of Appeal where it was stated that "Many important states are now parties to the New York Convention; and in this country the Arbitration Act 1975 was enacted to give effect to the convention, to which this country is a party. Parties to international arbitrations must nowadays frequently rely upon the convention for the purpose of enforcing awards; and when the award contains (as it will, for example, where the arbitration is conducted in accordance with the I.C.C Rules) an order for costs, the enforcement of the award will include an order for costs comprised in the award".
The parties concluded an agreement wherein a Chinese company (Zhongji) was contracted by a Congolese company (DCP) to tender for the supply and construction of pilings and civil works at a DCP site. The initial agreement (the "main agreement") concluded between the parties contained an arbitration clause, which recorded that the parties we obliged to have disputes settled in South Africa, in terms of English law and in accordance with the Rules for the Conduct of Arbitrations as published by the Association of Arbitrators (Southern Africa).
Due to unforeseen circumstances Zhongji was instructed by DCP at various times to desist from the work it was carrying out. In order to give Zhongji comfort that the work tendered for would be completed, DCP and Zhongji concluded an interim agreement, which was described as being rather "skeletal" and did not make any provision for arbitral proceedings. Sometime later DCP advised Zhongji that the main agreement was to be cancelled and so, too, the interim agreement.
DCP subsequently merged with another company and became Kamoto (KCC), which assumed all of DCP's rights, responsibilities and liabilities, including those arising out of the main agreement and interim agreement with Zhongji. KCC's attorneys subsequently informed Zhongji that its claims now lay against KCC and that KCC did not consent nor submit to arbitration. This complicated matters as both KCC and Zhongji are peregrini, the agreements were concluded and performed outside of South Africa and there was no attachment to found jurisdiction.
KCC ultimately agreed to arbitration in respect of claims falling under the main agreement, but not those claims arising out of the interim agreement. This resulted in Zhongji bringing the declaratory application in the High Court to have the claims arising from the interim agreement to be declared arbitrable in accordance with the terms of the main agreement. Zhongji's claim in the High Court was dismissed as being premature. The SCA found that the High Court was correct and accordingly dismissed the Zhongji's claim.
The SCA stated that if the High Court were to have ruled as to whether the claims arising from the interim agreement were in fact arbitrable, it would have been contrary to the provisions of the arbitration clause in the main agreement to which DCP (and consequently KCC) and Zhongji agreed. The SCA reasoned that a court was not entitled to consider such jurisdiction unless an order has been granted in terms of section 3(2) of the Arbitration Act 42 of 1965.
The SCA then stated that in terms of Rule 12.1 of the sixth edition of the Rules of the Association "the arbitrator may decide any disputes regarding the existence validity or interpretation of the arbitration agreement and, unless otherwise provided therein, may rule on his own jurisdictions act". The SCA accordingly found that once the arbitration tribunal had been appointed in terms of the main agreement, the rules of the Association would give the tribunal the ability to decide the issues that may be raised before it, including its own jurisdiction and interpretation of the parties' agreement. This therefore allowed the tribunal to consider the claims Zhongji sought to have declared arbitrable in both in the High Court and in the SCA.
Thus, the SCA stated, there was no reason or necessity for it to determine whether or not the claims arising from the interim agreement were indeed arbitrable, as this fell to be decided by the arbitration tribunal prior. The SCA stated that in the event that the arbitration tribunal decides in Zhongji's favour, then Zhongji may apply in terms of section 32 of the Act for the award to be made an order of court and, consequently, internationally enforceable by reason of the New York Convention and numerous other treaties in terms of which there is a reciprocal recognition within the committee of nations of orders of court made in foreign countries.
Section 3(2) of the Act continues to allow parties the ability to squirm out of arbitrations to which they have agreed and does little to promote certainty in this form of dispute resolution in South Africa. Should South Africa wish to become a centre for international arbitration serious consideration should be given to updating our laws governing arbitrations, as the Act is somewhat outdated when compared to international standards.
In the present case, the SCA was at great pains to point out the need for parties to respect the arbitral process in order to ensure that disputes were concluded efficiently as well as to promote international arbitration in South Africa. The SCA points out that this will both improve the legal environment and expertise as regarding international arbitrations as well as provide additional stimulus to our economy. It was also highlighted that parties who are aggrieved with an arbitrator’s decision have remedies at law, with the court's jurisdiction being impossible to oust entirely in our law, but prior to these remedies being pursued parties must proceed in accordance with the terms of their arbitration agreement.
It is understood that the law reform commission is busy revisiting and drafting new legislation relating to arbitrations in South Africa. Let's hope that this decision invigorates the legislature into publishing a bill and promulgating legislation to further South Africa's prospects of becoming a centre for international arbitrations.