New International Arbitration Act a start of a new era for South Africa

September 1st, 2018
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By Kgomotso Ramotsho

Werksmans Attorneys hosted a seminar on arbitration in Johannesburg on 14 June. Senior Counsel at the Johannesburg Bar, Patrick Lane said it was the dawn of a new era for South Africa (SA). He pointed out that it took SA 24 years to modernise arbitration laws. He noted that for many years the domestic courts felt that arbitration was a privatisation of law for a small minority.  However, he added that through the Southern African Development Community (SADC) and international pressure there has been a realisation that the world requires neutrality in relation to cross-border disputes.

Senior Counsel at the Johannesburg Bar, Patrick Lane, spoke at the Werksmans Arbitration Seminar, on 14 June in Johannesburg.

Mr Lane said the significance of the International Arbitration Act 15 of 2017 (the new Act), is that it adopts the Uncitral Model Law on International Commercial Arbitration with a few minor variations. He added that the new Act coming into effect in SA, has positioned SA as a primary seat for arbitration. He pointed out that the Uncitral Model Law came into existence in 1985 and was guided by the General Assembly of the United Nations. It was likely to lead to a realistic degree of harmonisation in practice, as its policy was one of liberalisation of the international arbitration, with unlimited interference by national courts and emphasising the consensual nature of arbitration, removing the courts as far as possible from intervention.

Mr Lane said arbitration was set out to establish a call for mandatory divisions to ensure fairness, due process and the creation of a framework to conduct international arbitrations and to clarify certain issues. He added that the objectives of the new Act facilitate the use of arbitration as a method of resolving international dispute. However, he noted that the Arbitration Act 42 of 1965 (the 1965 Act) remained enforced in as far as domestic disputes are concerned. The Acts will run parallel for the time being and Mr Lane pointed out that the Uncitral definition that constitutes an ‘international dispute’ has been adopted in the new Act. He added that another objective of the new Act was that it adopted the model law to use for international commercial dispute and facilitates the recognition and enforcement of certain arbitration agreements and arbitral awards. He pointed out that the new Act has given effective obligations, under the convention on the recognition and enforcement of foreign arbitral awards.

Investments dispute

Director at Werksmans Attorneys, Pierre Burger, said as a rule there cannot be arbitration proceedings without an arbitration agreement. However, he added that the exception to the rule is the Investor-State Dispute Settlement (ISDS), which does not depend on the party to party agreement, but instead depends on a higher-level agreement, namely a state to state agreement. He pointed out that the two states involved in a dispute must agree that in that event the dispute will be referred to international arbitration. He noted that the state to state agreement is encapsulated in investment treaties.

Mr Burger said such an agreement generally includes protection for the country’s respective investors. He noted that the agreements, include –

  • national treaties, which means an investor gets treated no less favourably than if they were a national in the country, which they have invested in;
  • protection from arbiter expropriation;
  • security;
  • the ability to transfer the proceeds of their investment back to their home state; and
  • ISDS by means of arbitration.

Director at Werksmans Attorneys, Pierre Burger, discussed investment disputes at the Arbitration Seminar.

He pointed out that investment treaties can take a form of bilateral investment treaties meaning that it is a bilateral agreement between two countries. He added that it can be a form of international treaty or international agreement.

Mr Burger pointed out that there were 153 contracting member states of the International Center for Settlement of Investment Disputes (ICSID), of which SA is not a member state. However, he said many bilateral treaties referred investment disputes to international arbitration under the ICSID. He added that SA has at least three bilateral investment treaties that referred investment disputes to international arbitration under the ICSID. He noted that a state did not have to be a member of the ICSID to take advantage of its facilities.

Mr Burger said in 2009 the South African government announced a review, which was aimed at replacing previous treaties with the model bilateral investment treaties. However, he pointed out that by 2013, SA started terminating bilateral investment treaties. He said ten of the bilateral investment treaties had been terminated, of which nine were from European countries and the most recent one from Argentina. He added that the intention of government was to phase out all bilateral investment treaties and replace them with domestic legislation. Mr Burger pointed out that what the South African government did not take into account was the sunset clauses in the bilateral investment treaties that were terminated, which meant that when government terminated the bilateral investment treaties, they continued to have effect for a lengthy period of time, in some instances up to 20 years.

Mr Burger said if government did not consent to international arbitration after exhausting all domestic remedies, arbitration will be conducted between SA and the home state of an investor. He pointed out that there was also the SADC Protocol on Finance and Investment and it has an investment annex, which gives investors the right to refer a dispute with the SADC states to international arbitration. He added that it extended benefits to investors from non-SADC states.

Arbitration of building and construction disputes

Director and Head of the Construction and Engineering practice at Werksmans Attorneys, Jason Smit, pointed out the standard contracts used in the engineering and construction sector were slowly moving away from arbitration. He added that arbitration was no more efficient and no better in resolving disputes than being in court. He said there was a growing trend in the engineering and construction industry to try and avoid arbitration, as it turned out to be acrimonious, unpleasant and no better in keeping parties working together than being in court. He noted that there were other mechanisms that could be used to avoid arbitration.

Mr Smit, said the engineering and construction sector have started recognising the need to not get involved in formal litigation processes, outside of court and increasingly not in arbitration. He added that there were three standard forms of contracts, that one could pick up and apply to their project, namely –

  • the Joint Building Contracts Committee (JBCC);
  • the New Engineering Contract (NEC); and
  • the International Federation of Consulting Engineers (FIDIC) contract.

Director at Werksmans Attorneys, Jason Smit said there was a growing trend in the engineering and
construction industry to try and avoid arbitration.

He noted that the JBCC was mostly used for local construction of buildings. He pointed out that such contracts utilised a tier of dispute resolution and the idea of pre-arbitration dispute resolution in the engineering and construction sector was to get a rough resolution of the matter, so people can continue building or designing.

Mr Smit said the engineering and construction sector spoke of an idea of rough justice, with the focus of keeping basic ideas under control. He added that there were ways not to end up in NEC arbitration and that there was an introduction of dispute board processes. He pointed out that people did not use the procedure to avoid disputes, but rather used it to position themselves for future disputes. He noted that under the standard form of FIDIC, there was a Dispute Avoidance Board (DAB), in which a party could compel the appointment of a DAB if another party did not want to.

Enforcement of arbitration awards

Director at Werksmans Attorneys, Roger Wakefield, said the new Act was based on the Uncitral Model Law. He added that the model law was an off the shelf template for international arbitration statutes, which states can simply adopt into their own domestic statute law. He pointed out that it has many features and most importantly it gives full effect to the principal of party autonomy. He noted that the principal party autonomy was the freedom for parties to choose how they wanted to resolve disputes. He said the courts in terms of this new Act were obliged to uphold the party’s choice.

Mr Wakefield pointed out that the model law was incorporated in the new Act in sch 1 by express reference. He said art 1 of the model law defined what an international arbitration was. He added that international arbitration is when parties – at the time when they entered into an agreement – had their places of business in different countries. He said it was also an international arbitration if parties expressed an agreement, that the subject matter of arbitration agreement related to more than one country.

Director at Werksmans Attorneys, Roger Wakefield, discussed enforcement of arbitration awards at the Werksmans Arbitration Seminar.

Mr Wakefield said an important concept in all these matters was the judicial seat of arbitration. He added that under art 20, parties are free to choose where the judicial seat of arbitration will be and if parties fail to agree the tribunal is empowered to determine where the seat should be. However, he pointed out that nothing prevents parties from choosing a venue that is different from the judicial seat. He said that prior to the commencement of the new Act, the 1965 Act, was inadequate to deal with international disputes, which naturally had a cross-border aspect.

Mr Wakefield said none of those aspects were catered for under the existing 1965 Act, which still applies to domestic arbitration. He added that the powers of the arbitral tribunal under model law, were vast and that the arbitral tribunal had more significant powers than the 1965 Act. He pointed out that the powers of the courts to intervene in the arbitral process have been reduced substantially. He noted that art 16 was important, as it avoids preliminary disputes about whether a dispute was in court or whether a dispute was about the validity of an arbitration agreement. He added that art 16 upholds the principle of what is  known in the language of arbitration as ‘competence-competence’, which is the power of the tribunal to rule on its own jurisdiction, which includes the power to rule on any objections with respect to the existence or validity of an arbitration agreement.

Mr Wakefield said the new Act goes further to treat the arbitration clause independently, from other terms of the contract. He pointed out that if the contract was declared invalid, the arbitral provision still stands. He added that it was not all clear under the 1965 Act, whether the tribunal had the power, even though it was established in common law. He noted that the question of jurisdiction can be dealt with in terms of art 16, either as a preliminary issue or by a tribunal at the end of the process in its award, once it has made its ruling.

Mr Wakefield said parties have a period of 30 days, in which they can approach the court to resolve the issue. He added that the court’s decision on the issue will be final and it was of no use to appeal the matter. He pointed out that the arbitration process was not prohibited or obstructed and what was interesting was the power granted to the tribunal to award interim measures under art 17. He said the power given under art 17 was exclusively preserved by the court and while the court still had the power the circumstances were limited.

Mr Wakefield gave an example that if the tribunal had not yet been established and the matter was urgent, the tribunal may order parties to maintain or restore the status quo pending the determination of the dispute. He said it may also order the party to refrain from taking any action that is likely to prejudice the arbitration process. He added that a party can enforce interim measures, which is awarded by the tribunal under art 17, on the application to court and then the court enforces the interim measures even if the measure was issued outside SA.

Mr Wakefield pointed out that the tribunal may appoint experts on its own to deal with matters, which require expert opinions. The tribunal can also determine the substantive law applicable to the dispute if a party fails to agree. The tribunal has the power to correct its award or award to manifest error. He added that the court’s role was reduced substantially compared to the 1965 Act. Its role now is to support the process and give effect to the principal of party autonomy. Mr Wakefield noted that art 33, which is a reviews provision in the 1965 Act, and empowers the courts to set aside an award, where a tribunal has misconducted itself or conducted a gross irregularity in the conduct of its proceedings or has exceeded its powers.

Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.

This article was first published in De Rebus in 2018 (September) DR 5.

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