A spotlight on arbitration in South Africa

The International Arbitration Act, 2017: A watershed moment

A central feature of South Africa’s development as a credible and attractive arbitration seat was the promulgation of the International Arbitration Act, 2017 (IAA), which came into effect from December 20, 2017.

Mr. Turner explained that before the IAA was enacted, foreign firms may have been uncertain over how international arbitrations might be treated in South Africa and the Sub-Saharan African region generally. Consequently, many international firms and businesses (including those based in Africa) defaulted to European seats for arbitration. The promulgation of the IAA was a watershed moment for South Africa, providing local and international businesspeople and legal practitioners with confidence that a robust framework exists for the determination of their disputes in South Africa and a level of certainty as to how international arbitrations will be undertaken in South Africa. This is good for investor confidence.

The IAA explicitly incorporates the UNCITRAL Model Law on International Commercial Arbitration (Model Law) into South African law, creating alignment with global standards in arbitration. In doing so, South Africa has met its obligations as party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The South African courts have applied the New York Convention and show a willingness to enforce foreign arbitral awards within the jurisdiction.

Prior to the IAA, most arbitrations conducted in South Africa were domestic in nature, governed by the domestic Arbitration Act, 1965. While effective for local disputes, the old law did not align with evolving international standards for the resolution of international disputes. The IAA creates a dual arbitration regime, distinguishing between domestic and international arbitration. Domestic arbitration continues to be governed by the 1965 Act, while the IAA provides a specialized framework for international commercial arbitration. Under the IAA, an arbitration is ‘international’ if, for example, the parties to an arbitration agreement have, at the time of conclusion of that agreement, their places of business in different states; if the seat of the arbitration is situated outside the state(s) in which the parties have their places of business or the parties have expressly agreed that the subject matter of the arbitration relates to more than one country.

International arbitration practitioners acquainted with the Model Law will find the South African system familiar, but Mr. Turner highlights the following distinctions of which to be aware:

1. Disputes involving public bodies and the South African government will not follow the typical Model Law provisions – for example, proceedings may be required to be held in public, and there is no automatic recourse to investor-state (ISDS) mechanisms.
2. Disputes involving issues of status, criminal matters, family matters and administrative review proceedings involving public procurement remain matters exclusively to be determined by the courts.

Judicial support for arbitration

Prior to the promulgation of the IAA, the South African courts developed the South African common law on arbitration in line with international principles. The courts continue to apply recognized principles of international arbitration, such as the ‘kompetenz-kompetenz’ doctrine (that is, the jurisdiction for tribunals to rule on their own jurisdiction). South Africa’s Constitutional Court (the highest court) has confirmed the importance of party autonomy in selecting arbitration as a dispute resolution process, recognizing that the constitutional right of access to courts includes access to an independent tribunal agreed to by the parties for the determination of their disputes.

The Supreme Court of Appeal (SCA) (the second highest court) has continued to emphasize that parties are free to agree that disputes about the validity or enforceability of an agreement (including an arbitration agreement) must be determined by way of arbitration. In Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co, the SCA expressly recognized and applied the doctrine of severability to an arbitration agreement in a disputed main contract (a 2014 decision predating the IAA). In Canton Trading 17 (Pty) Ltd t/a Cube Architects v Hattingh NO (a 2021 decision post-IAA), the SCA expressly recognized the ‘kompetenz-kompetenz principle’ as part of South African law, permitting the courts to apply this principle in appropriate cases. Zhongji provides clear authority on how South African courts will interpret and apply arbitration clauses, upholding and following approaches adopted in other more established international arbitration jurisdictions.

More recently, the SCA in Tee Que Trading Services (Pty) Ltd v Oracle Corporation South Africa (Pty) Ltd and Another, reiterated that litigation in court should be stayed in favour of arbitration where an arbitration agreement exists. The Courts have an overriding discretion, but generally unless an arbitration agreement is null and void, inoperable or incapable of being performed, South African courts will stay court proceedings pending referral to arbitration. This reinforces the judiciary’s approach to upholding the autonomy of parties and arbitration agreements. This principle is applied whether the arbitration seat is in South Africa or in a foreign country.

It is noteworthy that the IAA, for the first time, expressly empowers South African courts in an international arbitration seated in South Africa to grant interim relief in support of arbitration, even if the arbitration is yet to be commenced.

Norton Rose Fulbright South Africa Inc. and Norton Rose Fulbright LLP acted for the successful applicants in the matter of Vedanta Resources v ZCCM Investments (Gauteng Division, Johannesburg ZAGPJHC 250 (23 June 2019)). In this seminal and first of its kind matter in South Africa, brought under the Model Law, the applicants successfully obtained an urgent interim anti-suit injunction against the Zambian-based respondents on the basis that the respondents had breached the relevant shareholders’ agreement (and arbitration clause contained therein) by pursuing winding-up proceedings against Vedanta in Zambia. The High Court held that it had supervisory jurisdiction in the matter as the foreign parties had chosen Johannesburg as the seat of the arbitration (the jurisdictional linking factor entitling the Court to assume jurisdiction), and the subject matter of the winding-up proceedings were in fact arbitrable disputes. The High Court, relying on various articles under the Model Law, and following a line of English authorities, held that it is empowered to order an anti-suit injunction to restrain foreign litigation proceedings brought in violation of an arbitration agreement where the seat is South Africa, including in circumstances where an arbitration is intended, but yet to be commenced. This was the first anti-suit injunction case brought under the Model Law in South Africa and illustrates the South African judiciary’s willingness to embrace international arbitration principles, bolstering South Africa’s pro-arbitration stance.

The role of AFSA and international collaboration

AFSA is the leading arbitration institution in South Africa. It is an independent, self-funded organization established by business and professional firms and institutions and has administered arbitrations and mediations since the mid-1990s. AFSA is a member of the International Federation of Commercial Arbitration Institutions (IFCAI) and collaborates with multiple international bodies to share best practices and align with global standards.

Mr. Turner explained that after the promulgation of the IAA, AFSA established the AFSA International Court and published its AFSA International Arbitration Rules (for both administered and unadministered arbitrations). The AFSA Court and International Arbitration Rules provide a world-class mechanism for the resolution of international disputes, having been developed with input from leading international specialists in arbitration law and practice. The Rules allow for the efficient and effective implementation of the Model Law and the IAA. They have been crafted to address the complexities of global commerce; to incorporate the latest developments in international arbitration; and to ensure fair, efficient, and transparent dispute resolution. Designed to be adaptable, these rules provide procedural flexibility to accommodate the diverse needs of international parties and include elements directed at avoiding unnecessary disputes and delays over matters which otherwise can disrupt arbitral proceedings such as selection of arbitrators; addressing requirements for preliminary or interim relief; and creating mechanisms for emergency arbitrations.

Mr. Turner highlighted that the available statistics show that AFSA has attracted a large number of international arbitrations since the promulgation of the IAA, exceeding 50 per year in some years – with about a third of its international matters involving parties from the Southern African Development Community (SADC) member countries outside of South Africa. Increasingly, these arbitrations relate to projects and disputes arising in the broader Sub-Saharan African region.

Mr. Turner explained that AFSA is engaged in two major initiatives to promote international arbitration as a preferred method of dispute resolution in Sub-Saharan Africa with the aim of ensuring parties achieve independent and enforceable results.

The first initiative relates to Chinese and African joint commerce and dispute resolution. The China-Africa Joint Arbitration Centre was established to provide an arbitral body recognized in China for disputes involving Chinese parties on the African Continent. The second initiative is the establishment of AFSA’s SADC Alliance Charter and SADC division. With the support of government and practitioners in most of the 16 SADC member countries, the intention is to create a regional arbitration framework with the aim of providing certainty and consistency in cross-border dispute resolution. The AFSA-SADC Alliance MOU sets out several objectives to achieve this purpose, including projects aimed at standardizing rules for arbitration and mediation across the SADC member countries; providing an administrative secretariat for case handling; offering training facilities for arbitrators and mediators; and holding and participating in conferences and seminars to promote the initiative. The AFSA-SADC Alliance Charter was signed at the Johannesburg Arbitration Week in April 2024, marking a significant step in transforming arbitration practice in the SADC region.

South Africa as a credible and attractive choice of seat

South Africa’s legal framework, together with its growing institutional infrastructure, expertise of local arbitrators and practitioners, and a judiciary that has reaffirmed its commitment to party autonomy and support of international arbitration through a generally non-interventionist approach and an overarching willingness to enforce foreign arbitral awards in South Africa, make it a credible and attractive choice of seat for international arbitration, particularly in a Sub-Saharan African context.

The country’s alignment with global standards, as evidenced by the incorporation of the UNCITRAL Model Law and the New York Convention, should provide parties with comfort and certainty in arbitration proceedings and the enforcement of awards. Mr. Turner concludes that the country’s commitment to aligning with international best practice and fostering a supportive arbitration environment will go a long way to enhance South Africa’s standing in the global arbitration community.

This article was authored by Mr Sa’ood Lahri (director) and Ms Lara Thom (associate) of Norton Rose Fulbright South Africa Inc. with input from Mr Duncan Turner SC (a senior counsel at the Johannesburg Bar with a broad commercial practice, including an international arbitration practice, and a division chair at the Arbitration Foundation of Southern Africa).