THE REPUBLIC OF SOUTH AFRICA

John Bell, Jackie Lafleur and Terrick McCallum

A. LEGISLATION AND RULES

A.1 Legislation

International arbitration in South Africa continues to be governed by the International Arbitration Act, 15 of 2017 (“IA Act”), to which no legislative amendments have been made.

Domestic arbitrations in South Africa continue to be governed by the Arbitration Act, 42 of 1965, to which no legislative amendments have been made.

A.2 Institutions, Rules and Infrastructure

The Arbitration Foundation of Southern Africa (AFSA) and the Association of Arbitrators, Southern Africa (AASA) remain the most popular domestic arbitration organizations used to resolve commercial disputes in South Africa.

AFSA has a number of divisions, including a domestic and international division. Since the promulgation of the IA Act, AFSA’s international caseload has grown and, as a result of this, AFSA is in the process of revising its International Arbitration Rules to bring them in line with the IA Act and UNCITRAL Model Law. The amended rules will be released in March 2020.

B. CASES

B.1 Foreign arbitral award ceasing to exist following a compromise by the parties

In the recent and somewhat controversial case of The Government of the Republic of Tanzania (“Government”) v Hermanus Phillipus Steyn (“Mr. Steyn”) & Others[1] (“2019 case”), the High Court of South Africa held that an attachment order granted over an aircraft owned by the Government in satisfaction of a foreign arbitral award should be set aside on the basis that the arbitration award essentially “ceased to exist” when it was made an order by the High Court of Tanzania. The facts of the case are briefly set out below.

During July 2010, Mr. Steyn, a Namibian national, obtained an arbitration award against the Government which in May 2011, declared a decree by the High Court of Tanzania and became enforceable as such (“2011 decision”).

During July 2012, the parties concluded a settlement agreement in terms of which it was agreed that the Government would pay Mr. Steyn a reduced sum of USD 30 million. The settlement agreement was made an order of the High Court of Tanzania (“Consent Order”).

During 2018, the Government applied to the High Court of Tanzania for a review of the 2011 decision. 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 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 IA Act (“2019 order”).

In the 2019 case, the Government sought 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 the court.

The court found that the literal and plain interpretation of clause six of the settlement agreement, which provided for the “immediate enforcement of the Consent Order,” 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.

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 Government to find 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.

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 recognized 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 defense, set-off or otherwise in any legal proceedings.”

Consequently, the court’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. This should not, however, be interpreted to mean that all arbitration awards cease to exist once they are recognized 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.

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 completely upfront on the remedies and recourse available to them in the event of a default, especially in cases involving foreign arbitral awards.

B.2 International arbitration agreements are enforceable by South African courts

In the case of Oracle Corporation South Africa Proprietary Limited (“Oracle”) v Tee Que Trading services Proprietary Limited (“Tree Que”), Tree Que sought to claim damages against Oracle on the basis of Oracle’s breach of an agreement concluded between the parties.

The agreement, however, contained the following two clauses:

  1. Arbitration

25.1     All disputes, controversies and differences of opinion arising out of or in connection with this contract or for the breach hereof which cannot be settled amicably by the parties hereto shall be settled by arbitration according to the then applicable rules of arbitration of the International Chamber of Commerce (ICC). The place of arbitration shall be London, England.

  1. Governing Laws

26.1     This agreement shall be construed and enforced in accordance with the laws of England without regard to its principles of conflict of laws. The parties agree that the jurisdiction and venue of any action with respect to this agreement shall be in a court of competent subject matter jurisdiction located in London, England and each of the parties hereby agrees to submit itself to the exclusive jurisdiction and venue of such court for the purpose of any such action.

As a result of these clauses, Oracle launched an application for the stay of Tee Que’s claim pending its referral to and finalization at international arbitration. It did so under the auspices of article 8 of the UNCITRAL Model Law, which applies in the Republic of South Africa through section 6 of the IA Act.

Tee Que opposed the application on the basis that:

  1. given that both parties were South African parties at the time that the dispute arose, the IA Act and UNCITRAL Model Law were not applicable as the dispute did not constitute an international arbitration, regardless of the wording of clauses 25 and 26 of the agreement; and
  2. even if the agreement did constitute an international arbitration agreement, the South African Court had the discretion to not enforce the agreement.

The Court held that the clear and unambiguous wording of article 1(3) of the UNCITRAL Model Law meant that the arbitration agreement was one to which the IA Act applied, making the agreement an international arbitration agreement for purposes of the IA Act. It held further that South African Courts no longer had the discretion to not enforce an international arbitration agreement.

The significance of this case is that the long-held discretion of the Court to not enforce an international arbitration agreement that has been superseded by the promulgation of the IA Act, especially in light of the duty imposed on South African Courts by the IA Act to uphold the New York Convention.

 

[1] [2019] ZAGPJHC 312 (4 September 2019).

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