International Arbitration Bill to attract foreign direct investment

September 1st, 2017

Deputy Minister of Justice and Constitutional Development, John Jeffery, giving the
keynote address at the International Arbitration: Opportunities for South Africa seminar at the University of the Witwatersrand in Johannesburg.

By Kgomotso Ramotsho

Deputy Minister of Justice and Constitutional Development, John Jeffery, said the new International Arbitration Bill B10 of 2017 (the Bill), coupled with the role of South African courts, is not the outsourcing of justice but a way of expanding on the delivery of justice in a manner that ultimately enhances access to justice. Mr Jeffery was discussing the importance of the Bill at the International Arbitration: Opportunities for South Africa (SA) seminar in July.

Mr Jeffery added that the Bill brings with it increased opportunities for the country. ‘The reforms contained in the Bill will ensure that arbitration legislation remains at the forefront of international arbitration best practices,’ Mr Jeffery said. He pointed out that he was confident that the Bill will assist businesses in resolving their international commercial disputes and will ensure that SA is an attractive venue for parties around the world to resolve their commercial disputes.

Mr Jeffery noted that the Bill will also attract foreign direct investment. ‘With this in mind, I have no doubt that we will see SA as a preferred arbitral seat in the very near future,’ Mr Jeffery said. He added that arbitration offers many advantages and is typically faster, less formal and more tailored to the particular dispute than court proceedings while, at the same time, retaining the benefits of impartial expert adjudication.

‘Possibly the biggest challenge of arbitration is that it is a method of dispute resolution that is chosen and controlled frequently by the parties themselves. Over time, international arbitration has developed as a practical, efficient and well-
established method of settling commercial disputes without resorting to the courts,’ Mr Jeffery said.

Mr Jeffery noted that arbitration and the broader administration of justice is not something static, but develops and must keep up with the times. He added: ‘Importantly, especially from a South African perspective, respondents’ preferences for certain seats for arbitration are predominantly based on their appraisal of the seat’s established formal legal infrastructure – in other words –

  • the neutrality and impartiality of the legal system;
  • the national arbitration law; and
  • its track record for enforcing agreements to arbitrate and arbitral awards.’

Mr Jeffery added that the Bill emanates from an investigation of the South African Law Reform Commission. He said concerns were raised that the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977 is not in alignment with international developments and that the Arbitration Act 42 of 1965 is inadequate for purposes of international arbitration. He said South African arbitration law is outdated in many respects and needs revision and updating in order to reflect and serve modern commercial needs.

‘The main thrust of the Bill is the adoption of the UNCITRAL [United National Commission on International Trade Law] Model Law as the cornerstone of the international arbitration regime in South Africa,’ Mr Jeffery said. He pointed out that the Model Law is the current international benchmark for arbitration laws, as it was developed to address the wide divergence of approaches taken in international arbitration throughout the world and to provide a modern and easily adapted alternative to outdated national regimes.

‘It is intended for adoption by individual countries and has been adopted by many Commonwealth and other countries, including important trading partners of South Africa, both within the SADC [Southern African Development Community] and beyond,’ Mr Jeffery added.

Director and head of Arbitration Practice at Werksmans Attorneys and South African member of the Court of Arbitration of the International Chamber of Commerce (ICC), chairman of the ICC South Africa, Des Williams, said that when the topic of international arbitration is discussed a fundamental point must be kept in mind and that is, that arbitration rises from an agreement to arbitrate. It is that requirement that distinguishes arbitration from legislation.

Mr Williams added that it is a fundamental requirement of equal importance in any discussion of arbitration, whether international or domestic. He pointed out that arbitration is an alternative for the dispute resolution mechanism, but it must be an agreed alternative. Mr Williams touched on a bit of history on why SA took so long to implement legislative reform of arbitration legislation.

Mr Williams said in 1998 the South African Law Commission recognised that SA was increasingly seen as the obvious centre for the resolution of arbitration by arbitration of commercial dispute affecting parties, not only in SA, but also in other African countries. He said it was essential, therefore, that SA arbitration proceedings should be brought into line with those in other developed countries.

Director and head of Arbitration Practice at Werksmans Attorneys and South African member of the Court of Arbitration of the International Chamber of Commerce (ICC), chairman of the ICC South Africa, Des Williams, discussed the start of a new chapter for international arbitration in South Africa.

Mr Williams noted that in July of 1998 the commission submitted its report on its investigation into international commercial arbitration. He said one of the commission’s core recommendations that were made was a compulsory application of the UNCITRAL Model Law and the embodiment of all SA legislation on international arbitration in a new international arbitration Act. However, Mr Williams said at the time the popularity of arbitration was becoming a political issue.

Mr Williams referred to the report (Racism in the judiciary and the Cape Bar 2004) that was submitted in 2005, where Judge John Hlophe concluded that, black judges continued to be the victims of racism in SA’s legal system. He added that one of the targets of the report was arbitration and its place in SA’s legal system. Mr Williams said the report suggested that arbitration was inimical to judicial transformation in SA and that legislative measures had to be introduced to control the abuse of the arbitration process.

Mr Williams noted that the issue was also referred to by the commission in its domestic arbitration report (South African Law Commission Project 96 Domestic Arbitration Report (2001)), where reference was made to the danger of perception that ‘particularly among black lawyers, that some white members of the legal profession see arbitration as a form of “privatised litigation”, enabling them and their corporate clients to avoid courts which decreasingly comprise of black judicial officers,’ Mr William quoted.

Mr Williams said the popularity of arbitration continued to be politically contentious until four or five years ago, as it became increasingly apparent that SA was losing a valuable opportunity to become an important arbitration centre like Mauritius. Mr Williams also touched on the topic of the Model Law. He said that Model Law will have no barring whatsoever on domestic arbitration. He added that the Arbitration Act will, therefore, continue to apply to domestic arbitration, until such time it is replaced by a new Domestic Arbitration Act.

Mr Williams pointed out that it was important to draw a distinction between model law and arbitration rules. He said the Model Law is not a set of arbitration rules. The International Arbitration Act read with the Model Law will replace the Arbitration Act in relation to international arbitration as defined. However, he said that it does not affect the ability of the parties to agree to submit disputes to arbitration under the rules of any specific organisation that they may choose.

Mr Williams noted that on international investment treaty arbitration, one of the recommendations made by the commission, was that SA should follow the example of most other African countries and ratify the Washington Convention, as it would create necessary legal frame work to encourage foreign investment and further economic development in the region.

Mr Williams pointed out that the recommendation was not accepted and that SA did not ratify the Washington Convention. ‘Arbitration is widely used for resolution of commercial dispute in most African countries. African arbitration laws are modern and meets international standard and benchmarks,’ Mr Williams said.

Partner in the Dispute Resolution Practice at Webber Wentzel, Priyesh Daya, spoke at the International Arbitration: Opportunities for South Africa seminar in July.

Partner in the Dispute Resolution Practice at Webber Wentzel, Priyesh Daya, spoke about the currently placed legislation of the Protection of Investment Act 22 of 2015. He said the Protection of Investment Act coupled with the draft regulations protocol SA has signed simply sets out processes that will be embarked when resolving disputes. He added that a key part of the legislation is that it advocates that all investor-state disputes be resolved firstly though mediation.

Mr Daya said the Protection of Investment Act goes further to advocate that should mediation not be successful, parties are well within their right to declare a dispute and the dispute has to go through a court process. ‘In other words it is advocating that SA judiciary system be exploited before resorting to arbitration,’ Mr Daya said. He added that
s (13)5 of the Protection of Investment Act stipulates that the government may consent to international arbitration, subject to the exhaustion of domestic remedies and that the consideration of the request for international arbitration is subject to administrative processes set out in s 6.

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

 This article was first published in De Rebus in 2017 (Sept) DR 10.