As the world becomes more globalized and as ongoing international investment interest and economic growth across Africa continues unabated, a sound international arbitration framework can assist business. It can provide international and local businesses in Africa with a comfortingly familiar process, that, if managed properly, can provide private, effective and cost effective dispute resolution for those venturing into new markets or growing in existing markets.
A reason for international arbitration’s increasing popularity in Africa may be that international businesses may be cautious about litigating disputes in local African courts. They may cite inefficient or complex court procedures, hostility by local judges, language problems, unfamiliar law and difficulties in enforcing foreign court decisions in these states or even difficulties in executing local judgments.
Another reason is that in-house counsel for international businesses may prefer to adopt a standard set of dispute resolution procedures across their various branch offices, divisions or subsidiaries. Large standard commercial contracts may include standard foreign governing law, exclusive jurisdiction or international arbitration clauses in their dispute resolution boilerplates.
Of course, different companies and investors may contract differently – the recent influx of investment from China, India and South Korea may lead to different contracting approaches or other ADR methods. In terms of foreign court clauses or “exclusive jurisdiction clauses” – where a foreign court is given exclusive jurisdiction to hear a dispute – these are often notoriously difficult to enforce and are not always valid in some states – the local courts may hold that they still retain exclusive jurisdiction despite these clauses.
Further, commercial arbitration and investment treaty arbitration is often the dispute resolution procedure of choice in the telecoms, natural resources, infrastructure/construction and financial industries.
With African states’ continued infrastructure investment on the continent (often with a foreign contractor involved the design or construction), the growth in construction ADR procedures (e.g. under the NEC3 and FIDIC forms) will likely flourish. The recent uptick in commodity prices may also revive investments in mining and natural resources and increase the number of disputes referred.
Another reason international businesses may prefer international arbitration is the relative ease of enforcing foreign arbitration awards under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention obliges signatory states (subject to any reservations to the treaty) to recognize and give effect to arbitral processes undertaken in other signatory states and allows for relatively simple enforcement of a foreign arbitral decision in a signatories’ national courts.
This may be a clear advantage over a foreign court judgment – as the international businesses’ assets may lie in another jurisdiction and foreign court judgments may be difficult to enforce in a foreign state and relatively few states are parties to reciprocal judicial enforcement treaties. In addition, the New York Convention has been adopted by more than half of all African states, although successful enforcement may differ among these states (the UNCITRAL website provides a map of adoptees www.uncitral.org).
Arbitration as a Business
The number of arbitral centers across the African continent is also growing (the OHADA mechanism is one to watch) and arbitration users can now move away from the traditional arbitration centers in London, Paris and New York.
Many international arbitration institutions, such as the Nairobi Centre for International Arbitration, established in 2013, the Lagos Regional Centre for International Commercial Arbitration and the Mauritius International Arbitration Centre (with the LCIA) have popped up and African law firms are developing specialist arbitration skills to service this growth in response. Unfortunately, relatively few international arbitration cases are heard on African soil or use African arbitrators. Africa is also gaining more recognition in the international arbitration fraternity. for example, the 2016 International Council for Commercial Arbitration Congress was held in Mauritius.
As international arbitration becomes more popular in resolving international business disputes, African countries can attract significant business and income from being selected as the seat or venue of an arbitration and provide considerable prestige to a city’s commercial reputation. A sound and modern arbitration framework – where a party could expect familiar arbitration rules and enforcement proceedings – is essential to attract the parties to a local arbitration institution. For example, AFSA recently launched a new international arbitration center dedicated to the resolution of commercial disputes between Chinese and African parties – the China-Africa Joint Arbitration Centre (CAJAC) in Johannesburg. With the promulgation of the International Arbitration Bill, South Africa hopes to become the preferred venue for international arbitration in Africa.
The International Arbitration Bill in South Africa
After significant political controversy around the role of arbitration in South Africa (and the possibility, inter alia, of subverting the court process), President Zuma’s Cabinet finally approved the International Arbitration Bill on 1 March 2017.
When it is enacted, the Bill will regulate international arbitration proceedings in South Africa and the enforcement of foreign arbitral awards. The Bill has progressed through stakeholder engagement processes, and if all goes well in the legislature, the government hopes the Bill will be ready to be signed into law in the middle of 2017.
The overhaul is partly due to South Africa’s current Arbitration Act of 1965, which governs both domestic and international arbitrations, no longer reflecting international best practice in international commercial arbitration proceedings. This was recognized by the Law Reform Commission in its recommendations on the reform of arbitration in South Africa but has only recently been implemented. Of course, after the Bill becomes law, domestic arbitration will still be covered by the current Arbitration Act as the International Arbitration Bill only applies to international arbitrations.
The UNCITRAL Model Law on International Commercial Arbitration is introduced
In order to modernize the law relating to international arbitrations, the Bill will incorporate the South African Law Reform Commission’s recommendations to incorporate the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (2006 Revision) into South African law. The Model Law has been adopted by numerous countries (the UNCITRAL website provides a map of adoptees www.uncitral.org) and it is seen as the gold standard for international and domestic arbitration internationally.
The incorporation of the Model Law will:
- incorporate the recognition and enforcement of foreign arbitral award provisions by giving effect to the New York Convention within the text of the Bill – currently, these provisions are contained in a separate Act;
- amend the Protection of Businesses Act 1978 to remove any reference to arbitration award from its ambit – currently, the Minister of Economic Affair’s permission required for the enforcement of certain foreign arbitral awards;
- exclude a public interest ‘veto’ by the South African Government over the recognition and enforcement of foreign arbitration awards, with certain exceptions, for example, when the subject matter is not arbitrable in SA or the enforcement is against public policy; and
- provides that international commercial arbitrations conducting by or against public bodies will be possible. Investor-state arbitrations will be regulated by a special regime under the Protection of Investment Act of 2015. When a date is set for its commencement, the Protection of Investment Act requires that parties to an investor-state dispute with the South African government first exhaust domestic remedies before a foreign investor can approach the government to consent to international investment arbitration proceedings.
Additional key distinguishing features of the UNCITRAL Model Law
- it presents a special legal regime geared to international commercial arbitration;
- it covers all stages of the arbitral process from the arbitration agreement to the recognition and enforcement of the arbitral award;
- it encourages a degree of procedural flexibility and the parties are free, within the confines of the Model Law, to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings;
- it envisages limited court involvement in arbitrations. These instances include challenges to the appointment of an arbitrator and termination of his mandate, the jurisdiction of the arbitral tribunal, and the setting aside of the arbitral award. The Model Law also contemplates court assistance in taking evidence, the recognition of the arbitration agreement, including its compatibility with court-ordered interim measures of protection and recognition and enforcement of arbitral awards;
- the 2006 amendment provides clarity on applications for interim measures, the power and conditions imposed on a tribunal to order interim and preliminary measures and the enforcement of such measures;
- it adopts the principle of “Kompetenz-Kompetenz” and “separability” or autonomy of the arbitration clause – the arbitral tribunal may rule on its own jurisdiction and rule on any objections with respect to the existence or validity of the arbitration agreement – an arbitration clause can be treated as an agreement independent of the other terms of the contract (this exists in the common law in South Africa);
- it does not determine which matters may or not be subject to arbitration – this is still governed by local law;
- it provides that the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case;
- it provides for a procedure in default on providing notice to the defaulting party; and
- contains a list of limited grounds on which an award may be set aside.
The UNCITRAL website (www.uncitral.org) provides a large amount of guidance and case law to assist lawyers, courts, and arbitrators in understanding the text. The body of existing case law, commentary and guidance will hopefully ensure a relatively smooth transition to the Bill’s adoption and interpretation by both South African and international businesses and lawyers.
Several challenges still exist, for example, the difficulties in appointing appropriately experienced arbitrators and lawyers to assist in the type of complex and drawn-out infrastructure of finance cases that often go to international arbitration.
Better resourcing and training of lawyers conducting arbitrations and the appointment of more African arbitrators will hopefully alleviate these challenges – at least the South African courts have a positive attitude towards arbitration and cases law indicates that the local courts will generally not interfere in the arbitral process. Whether South Africa does become an attractive international arbitration destination is thus, yet to be seen.
It is clear that the Bill is being introduced with a view to allowing international entities recourse against and by public and private entities and persons in South Africa and aims to promote South Africa as an arbitral seat and venue.
The government’s decision to bring South Africa in line with international best practice should be welcomed. One hopes that, as that international arbitration becomes better known and utilized, that it is more widely adopted by business and lawyers alike. South African courts already recognize international arbitration and are aware of both the pros and cons of international arbitration as a dispute resolution mechanism.
INTERNATIONAL INVESTMENT LAW DISPUTES – A SIDE BAR
The South African government also recently passed the Protection of Investment Act in late 2015. The aim of the Act is to strengthen South Africa’s ability to attract foreign investment, increase exports and maintain a balance between the rights and obligations of all investors in South Africa.
Although it has been promulgated but is yet to come into force (at the time of writing), the Protection of Investment Act will, by and large, replace the BITs between South Africa and other countries, which typically provide for investor-state arbitration as the preferred method of dispute resolution. Investor-state international investment law disputes will not fall under the International Arbitration Bill, if promulgated in its current form, appear to fall solely under the Protection of Investment Act, although clarity on this point will be needed.
The Protection of Investment Act provides for mediation or state-to-state arbitration of foreign investment disputes after the parties have exhausted its remedies available in the South African courts. The South African Department of Trade and Industry has published draft rules for mediation in investor-state dispute resolution under the Protection of Investment Act.