SOUTH AFRICA
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 (“Arbitration Act”), 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, 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. The AFSA international division is responsible for administering AFSA’s international cases. Since the promulgation of the IA Act, AFSA’s international caseload has grown exponentially. As a result of this, AFSA decided to review and revise its International Arbitration Rules in order to facilitate the continued growth of its international caseload and to ensure that it keeps pace with developments of the rules of other major arbitral centers around the world.
On 1 July 2020, AFSA’s new draft International Arbitration Rules (the Rules) were published for public comment. Some of the highlights of the Rules include:
- Article 10, which provides for an expedited arbitration procedure in circumstances where the amount in dispute, counterclaim (or set-off) defense does not exceed USD 500,000 or where the parties agree to an expedited procedure. Aimed at reducing the time and costs often associated with international arbitration proceedings, the expedited procedure requires that a final award be communicated to the parties within six months from receipt of the case file by the tribunal. Only in exceptional circumstances can the Secretariat established under the Rules extend this time period.
- Article 11, which makes provision for the appointment of an emergency arbitrator in circumstances where urgent relief is required prior to the constitution of the arbitral tribunal.
- Article 12, which makes provision for the early dismissal of a claim or defense in circumstances where such claim or defense lacks legal merit or is manifestly outside the jurisdiction of the arbitral tribunal.
- Article 17, which provides that, where a respondent fails to submit a Statement of Defence or a claimant a Statement of Defence to a Counterclaim, or if any party fails to avail itself of the opportunity to present its written case, then the tribunal may proceed with the arbitration and make one or more awards.
- Article 29(1), which provides that, prior to the constitution of the tribunal, a party may bring an application for one or more additional parties to be joined, provided that all parties, including the party to be joined, have consented to the joinder or the additional party to be joined is prima facie bound by the arbitration agreement in terms of which the arbitration has been brought. After the tribunal has been constituted, Article 29(8) provides that a party or non-party may only be joined if all of the parties have consented to the joinder (including the party sought to be joined).
- Article 21(6) which provides that the tribunal may direct that the hearing take place in person or by any other means appropriate, taking into account all of the circumstances of the parties. This includes hearings via video or teleconference or a combination of the two.
The period for public comment in respect of the Rules closed on 31 August 2020. Further updates in respect of the implementation of the Rules and/or any amendments to the Rules are to be expected to be communicated by AFSA soon.
B. CASES
B.1 Application for stay of arbitration proceedings dismissed
In the case of Delta Beverages (Pty) Ltd and Another v Blakey Investments (Pty) Ltd and Others[1], Delta Beverages (Pty) Ltd (“Delta”) and Schweppes Zimbabwe Limited (“SZL”) brought an application for the stay of arbitration proceedings against Blakey Investments (Pty) Ltd (“Blakey”) pending the finalization of legal proceedings in the High Court of Zimbabwe declaring a supply agreement entered into between the parties to be declared void, alternatively voidable or unenforceable.
Following an internal audit at Delta in 2019, it was discovered that the supply agreement was entered into without the necessary approvals and oversight. As a result of what it describes as a “commercially oppressive contract,” Delta refused to accept further deliveries of goods from Blakey and contested the basis on which the supply agreement was concluded.
When Delta proceeded with litigation against Blakey in May 2020, Blakey referred the matter to arbitration in South Africa in terms of the arbitration clause in the supply agreement. Delta participated in pre-arbitration hearing meetings to “protect their interests” despite its position that if the supply agreement is susceptible to being set aside as being void ab initio, then all the consequential clauses thereto fail with it. Shortly after delivering a statement of defense (including three special pleas), Delta applied for a stay of the arbitration proceedings, pending the outcome of the court case in Zimbabwe.
Delta advanced two arguments in the Durban High Court. First, it argued that if the supply agreement is susceptible to being set aside as void during the court proceedings, arbitration cannot proceed based on the “fraud-tainted agreement.” Reference to the case of North West Provincial Government & another v Tswaing Consulting CC & others[2] was made in which Cameron JA held that an arbitration clause which is “embedded in a fraud-tainted agreement” cannot stand and “the agreement purporting to give effect to it is stillborn.” Second, it argued that the High Court of Zimbabwe is the appropriate court to determine the validity of the supply agreement.
Further, the court emphasized that despite the applicants contending that the supply agreement should be declared invalid and unenforceable, both parties acted pursuant to the agreement for a number of years without expressing any such concerns. The court noted that the only prohibition for a party referring a dispute to arbitration is when an agreement is null and void, inoperative, or incapable of being performed. As the existence of the supply agreement was not in dispute, the court held that they were bound by the confines of the supply agreement.
It was noted that courts should be “slow to encroach upon a decision to refer a dispute to private arbitration, for to do so would be to disregard the principle of party autonomy.”[3] A party to an agreement has the right to have a dispute resolved expeditiously and cost-effectively, following what was contracted into. This alone is a consideration that must be heavily considered when there is a valid agreement opting for an alternate dispute resolution mechanism.
The application for a stay was accordingly dismissed.
B.2 The court refuses to set aside an arbitration agreement in the absence of good cause shown
On appeal, the court in the case of Pro-Khaya Constructions CC v Strata Civils and Others[4] provided guidance as to when the court would exercise the discretion afforded to it in terms of section 3(2)(b) of the Arbitration Act, which provides that the court may, at any time on the application of any party to an arbitration agreement, on good cause shown, order that the arbitration agreement shall cease to have effect with reference to any dispute referred.
The facts of the case are briefly set out below.
The appellant, Pro-Khaya Constructions CC (“Pro-Khaya”) was awarded a contract by Coega Development Corporation Proprietary Limited for works requiring Pro-Khaya to build extensions to an existing building, build additional structures and install a fire reticulation system. Pro-Khaya entered into a domestic subcontractor agreement with Strata Civils and Others (“Strata”) and JDM Drilling (“JDM”) in respect of the completion of the works.
Following the installation test, it was discovered that there was a “slippage” and that the pipes were not correctly connected. Pro-Khaya alleged that both Strata and JDM were jointly to blame for the defective work.
The parties agreed to arbitration in writing in the contracts. Strata launched arbitration proceedings against Pro-Khaya, which, in turn, counterclaimed in the arbitration. Pro-Khaya also launched arbitration proceedings against JDM. Both arbitrations overlapped to some extent, and, as a result, Pro-Khaya sought to consolidate the proceedings against Strata and JDM.
Section 3(2)(c) of the Arbitration Act provides that a court may set aside an arbitration agreement “on good cause shown.” The requirements of “good cause” were discussed in Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd,[5] where Colman J said the following:
“Such an onus is not easily discharged. There are certain advantages, such as finality, which a claimant in an arbitration enjoys over one who has to pursue his rights in the Courts; and one who has contracted to allow his opponent those advantages will not readily be absolved from his undertaking… the discretion of the Court to refuse arbitration under a submission was to be exercised judicially, and only when a ‘very strong case’ for its exercise had been made out.”
In De Lange v Methodist Church and another[6], it was held that “[a] Court’s discretion to set aside an existing arbitration agreement must be exercised only where a persuasive case has been made out. It is neither possible nor desirable, however, for Courts to define precisely what circumstances constitute a persuasive case.” It was also held that the requirement of good cause entails a consideration of the merits of each case in order to arrive at a just and equitable outcome in a specific set of circumstances.
As a result, the court considered a number of facts, including but not limited to: (i) that there were no allegations of fraud, misconduct, or irregularity; (ii) the arbitration agreements were valid; (iii) the main issues were technical and well-suited to expert arbitration; (iv) there were separate issues which were not common between the two arbitrations; (v) there was lacking a compelling reason to set aside either or both arbitration agreement; and (vi) upholding the arbitration agreements would not render the outcome in these specific circumstances in any way unjust or inequitable.
The appeal was accordingly dismissed.
B.3 The remedy for a party aggrieved by an arbitration award is to challenge it by way of review, not by setting up a parallel process
In the case of Airports Company South Africa SOC Ltd v Lebolex (Pty) Ltd and Others[7], the applicant, Airports Company South Africa SOC Ltd (ACSA), sought to review and set aside its own decision to award a tender and contract for the provision of fleet maintenance services to the first respondent, Lebolex (Pty) Ltd (“Lebolex”).
On 21 May 2018, ACSA invited service providers to tender for the provision of maintenance and related services in respect of its fleet of 144 vehicles. It was common cause that ACSA’s award of the tender to Lebolex was made pursuant to a fair, transparent, equitable, and competitive bidding process. ACSA relied on two grounds of review: (1) it committed a material mistake in the bid process as a result of a misunderstanding as to Lebolex’s “monthly administration fee”; and (2) an alleged misrepresentation made by Lebolex as to its national and regional dealer footprint.
When a dispute arose regarding the amount owed by ACSA in respect of the monthly contract administration fee, Lebolex invoked its rights under clause 26 of the contract concluded with ACSA and referred the dispute to arbitration. Although ACSA launched an application for the review of the arbitrator’s awards, it suspended the proceedings pending the outcome of the review launched with the High Court. The court went on to deal with the issue in adopting such an approach.
The court emphasized that if parties choose arbitration, courts should endeavor to uphold their choice. Section 28 of the Arbitration Act states that “unless the arbitration agreement provides otherwise, an award shall, subject to the provisions of this Act, be final and not subject to appeal and each party to the reference shall abide by and comply with the award in accordance with its terms.”
ACSA had not sought to have the arbitrator’s awards determined before a hearing of the review. As such, the arbitrator’s awards remain valid and binding until such a time as they are reviewed and set aside by a court. ACSA insisted on proceeding with the review, notwithstanding that it remained bound to an arbitration award. The court emphasized that even if it decided in favor of ACSA and the contract awarded to Lebolex were to be set aside as unlawful. The decision would not be capable of implementation in light of the fact that two valid and binding arbitration awards upheld the validity of the contract.
What was important to note from the judgment is that the courts are “arbiters of legality,” and so decisions upon which arbitration awards are premised cannot be ignored unless set aside by a court. The court emphasized:
“[i]f ACSA was aggrieved by any aspect of the arbitrator’s award, its remedy was to challenge same by way of review. It was not for it to set up a parallel process and then to adopt a stance that it preferred the outcome of a public review process and was thus free to ignore that which was conducted under the auspices the private arbitration in which it has consensually participated. This, as matters presently stand, absent a review, the arbitration awards are binding on ACSA.”
The application was accordingly dismissed.
[1] (D2834/2020) [2020] ZAKZDHC 36 (31 August 2020).
[2] 2007 (4) SA 452 (SCA).
[3] MV Iran Dastghayb Islamic Republic of Iran Shipping Lines v Terra-Marine SA 2010 (6) SA 493 (SCA) para 35.
[4](CA247/2018) [2019] ZAECGHC 115; [2020] 1 All SA 267 (ECG) (19 November 2019).
[5]1971 (2) SA 388 (W) 391.
[6]2016 (2) SA 1 (CC).
[7](40767/2019) [2020] ZAGPJHC 289 (10 November 2020).
