#AfricaMonth: Resolving South Africa's Model Law lag

© Evgenyi Lastochkin – 123RF.com

Why introduce an International Arbitration Act?

International arbitration is a trans-national mechanism for the resolution of international commercial disputes between parties residing (or incorporated) in different states in a manner which avoids a foreign party from being subjected to the discretion of the courts of another state. The purpose of international arbitration is to encourage the resolution of disputes in a neutral forum, subject to the rules and procedure expressly agreed between the parties without the fear of interference from any judicial system.

Almost 18 years ago, the South African law commission recommended the adoption of an International Arbitration Act. For a number of reasons the proposed International Arbitration Act was not finalised and tabled in parliament. However due to South Africa's ever increasing need to foster and support the resolution of international commercial and/or investment disputes by multinationals or other foreign corporations doing business in South Africa, including using South Africa as the so-called "gateway" to the rest of Africa, it has become important for government to ensure that the South African legislation governing international arbitration is harmonised through the adoption of UNICTRAL Model Law on International Commercial Arbitration ("Model Law").

The Model Law was developed by the UN in an effort to establish a uniform international arbitration system that is acceptable to all member states with different legal, social and economic systems and to contribute to the development of harmonious international economic relations.

South Africa has historically not differentiated between domestic and international arbitration and, as a result, all arbitrations in South Africa whether domestic or international are subjected to the oversight of local courts. Once the International Arbitration Act comes into force, it will be applicable to international arbitrations and the current Arbitration Act will continue to apply only to domestic arbitrations. This move is not only in line with international trends but is largely regarded as the absolute minimum requirement if South Africa is to encourage parties to resolve international disputes by means of international arbitration in South Africa.

What does the introduction of the International Arbitration Act mean for access to justice?

Whilst the promulgation of the International Arbitration Act will not directly "promote" access to justice, it will facilitate the resolution of international commercial disputes with minimal interference by the South African courts.

By limiting the grounds for interference by South African courts, foreign parties will be encouraged to resolve their disputes in South Africa and to this end the new Act may promote access to justice, albeit in respect of foreign parties. In addition, arbitration in general, by its very nature, is a more expeditious form of dispute resolution than court litigation and may in this manner, further promote access to justice.

How can arbitration bring legal cost down?

The real benefit in using arbitration as opposed to court proceedings lies in the ability to provide a swift resolution to disputes (compared to court litigation). As a result of the reduction in time taken to resolve disputes, the costs associated therewith may very well be lower than those associated with protracted court litigation. This is however not necessarily the case. In any arbitration, the parties to the dispute will be liable for not only the costs of their own representations, but also the costs of the arbitrator and the institution (if nominated) appointed for the administration of the arbitration. The costs of the arbitrator and the institution involved are not costs which a litigant would have to bear in court litigation.

What is the litigation arena like in the rest of Africa and how long will it take for them to get equivalent arbitration legislation?

In relation to international arbitration in Africa, South Africa is anything but the leader in the field. It is intended that with the International Arbitration Act, the UNICITRAL Model Law on International Commercial Arbitration will be incorporated into law, in South Africa. As things presently stand, South Africa will be the 11th country in Africa to adopt the UNICITRAL Model Law (which is largely regarded as the framework upon which many countries have based their domestic laws relating to international arbitration).

A robust international arbitration legislative framework is required in order to, amongst others, ensure that parties involved in international disputes in South Africa are not concerned with the unnecessary interference by courts in the proceedings and that international arbitration awards in South Africa are rendered effective without the need to debate the nature of thereof (whether a domestic or foreign arbitral award) when one is required to enforce such award in other legal jurisdiction. This does not necessarily mean, however, that the award will be enforced in another country. To this end, the convention on the recognition and enforcement of foreign arbitral awards (New York convention) provides assistance in that signatories to the convention all agree to enforce foreign arbitral awards (subject to certain exclusions). South Africa is a signatory to the New York convention but not all African countries are. This in itself causes problems with enforcement in Africa.

Notwithstanding the difficulties faced with the enforcement of foreign arbitral awards in Africa, the continent is alive to the need for the advancement in this field of law and recent developments (for example in Mauritius) are evidence of the continent's commitment in the cause.

What is the best thing about these changes for South African businesses?

Once the new regime comes into force, disputants can take comfort in the fact that the South African International Arbitration regime will at least accord with international best practice and this should encourage parties to agree to the resolution of disputes by means of international arbitration, in South Africa. Being a Model Law jurisdiction for the resolution of international commercial and/or investment disputes, foreign businesses doing business in Africa may well choose South Africa as the natural choice for the seat of such arbitrations, in the event of a dispute. There is no direct benefit for South African businesses, save if such business enterprise is conducting business in the rest of Africa it may be easier to convince parties to the commercial transaction to choose South Africa as, amongst others, the seat for the resolution of any potential future dispute.

Will it require training of South African jurists?

For many years, South Africa (and Africa in general) has to lesser extent been actively involved in the resolution of international commercial disputes. There are a number of historic reasons for that which we do not intend to deal with at this stage, thus international arbitration has mostly been driven by the western world, recently also certain Asian jurisdictions. South African jurists have been practicing domestic arbitrations for many years, so the concept of arbitration is not new to our legal practitioners.

The above notwithstanding, international arbitration requires a particular skillset developed through a devoted interest and active participation in the field driving the need to upskill both practitioners and the judiciary (through training, seminars and actual exposure to such work). Such initiatives would highlight the fundamental differences between international and domestic arbitrations.

Once the International Arbitration Act is promulgated, we foresee a need for specialised court rules to be developed, guiding judges as to how they should approach matters involving international arbitration, in order to ensure that the judicial officers provide the necessary support to the development of international arbitration in South Africa (without involving the courts in a manner which acts contrary to the foundational principles of international arbitration).

Do we have enough desire to drive the change – what is the UN's view?

From a South Africa government perspective, we understand that there is a desire to ensure that South Africa adopts an international arbitration Act despite an 18 year delay in tabling the bill. In the interim however, countries such as Mauritius and Rwanda have already taken the lead by developing "centres of excellence" for international arbitration in Africa and South Africa cannot afford to be left behind in this field. From an infrastructure perspective South Africa is best place in SADC to develop a centre for excellence for the resolution of international commercial and/or investment disputes.

The UN has set the framework for the development of a Model Law for international commercial arbitration, it is for South Africa as a sovereign state to decide whether it intends conforming with international norms for the settlement of international commercial disputes. Even though the Model Law was developed almost 31 years ago by the UN it still remains relevant today for the resolution of international commercial and/or investment disputes. The Model Law is periodically revised to accord with current practices and norms, the last revision being done in 2006.

The proposed International Arbitration Act is a positive step for South Africa and demonstrates the political will from government with regard to the resolution of international commercial and/or investment disputes.