African Law Business | 13 February 2018
New dawn for South African arbitration
by Andrew Mizner
South Africa’s new arbitration law came into force at the end of 2017. Now lawyers and clients alike will have to see if it lives up to its promises.
South Africa’s new arbitration law has come into effect, bringing with it the government’s hopes of making the country a regional leader in alternative dispute resolution (ADR) and protecting it from what it perceives as negative international arbitral awards.
Passed by parliament in March 2017, the South African International Arbitration Act No. 15 of 2017 was finally approved by the National Council of Provinces in November and assented by President Jacob Zuma on 19 December, commencing the following day.
It may prove to be one of the final noteworthy acts of President Zuma’s tenure, following today’s news that the ruling African National Congress (ANC) has requested that he resign, following years of corruption allegations , sustained by the South African courts, and economic difficulties.
The law is the first of a two-part overhaul of South Africa’s ADR landscape, along with the Protection of Investments Act, introduced in 2015, but still not in effect.
As recommended by the South African Law Reform Commission, the Arbitration Act incorporates the UNCITRAL model law, described as “the gold standard for international and domestic arbitration” in a briefing by Rebecca Browning, a dispute resolution associate with Baker McKenzie in Johannesburg.
The act leaves the 1965 Arbitration Act intact for governing domestic arbitration and focuses on the country’s relationship with international arbitration.
It provides for the enforcement of awards under the New York Convention, superseding the Recognition of Enforcement of Foreign Arbitral Awards Act of 1977, which can now be repealed.
South Africa has had a tense relationship with international arbitration in recent years, cancelling bilateral investment treaties (BITs) with European countries in 2012, removing some of the investor-state dispute settlement (ISDS) protections that international businesses are used to, over fears that pro-investor awards would interfere with the government’s ability to pursue its Black Economic Empowerment (BEE) policy.
There had been speculation that the act would allow the government to override awards in such an event, but as noted by Browning: “Adopting the model law means there is no public interest veto for the recognition and enforcement of foreign awards.” Likewise, it allows for commercial arbitrations to be brought against publicly owned institutions.
Nonetheless, the Protection of Investments Act, which handles investor-state disputes, carves out certain public interest areas from challenge from investor rights, choosing to focus on promoting investor-state mediation instead, but it remains to be seen how that will be applied and there will be plenty for lawyers and their clients to be uncertain about until the government’s use of the carve outs becomes clear.
This has led to criticism from within and without the country that it has overreacted to the threat of awards against BEE policy by introducing a flawed process that will rely on a vaguely constructed process which may rely on mediators who lack experience of international business law.
South Africa is behind the likes of Mauritius, which has the LCIA-MIAC, or Rwanda, with the Kigali International Arbitration Centre, in establishing itself as a home for international arbitration in Africa, but as the continent’s business and legal leader, clearly has designs on claiming that crown.
Many expect the country to launch a new international arbitration centre, or re-launch one of its existing institutions, in order to capture this market, in the near future, and the new act is a step in that direction, as acknowledged in Browning’s briefing.
“Through the implementation of the International Arbitration Act, the South African government hopes to promote South Africa as a hub for regional arbitrations, with its attendant skills development and revenue opportunities. It is partly in response to other African jurisdictions gaining popularity as arbitration and investment destinations, such as Mauritius and Kenya,” she said.
She added: “Whether South Africa does become an attractive international arbitration destination remains to be seen, however, moves from the Arbitration Foundation of Southern Africa in establishing AFSA International and the establishment of the China-Africa Joint Arbitration Centre show that enthusiasm for international arbitration is on the rise.”
With the amount of international arbitration in the country expected to grow, following the introduction of the law, how the first batch of disputes is handled will go a long way to either dispelling or confirming the fears of international investors, and revealing whether South Africa will take up a place at the top table of international arbitration.