A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in South Africa continues to be governed by the International Arbitration Act, 15 of 2017 (“IAA“), which incorporates the UNCITRAL Model Law. Domestic arbitrations in South Africa continue to be governed by the Arbitration Act, 42 of 1965 (“Arbitration Act“).
A.2 Institutions, rules and infrastructure
The Arbitration Foundation of Southern Africa (“AFSA“) and the Association of Arbitrators, Southern Africa, remain the primary domestic arbitration organizations used to resolve commercial disputes in South Africa.
AFSA has a number of divisions, including domestic and international divisions. AFSA recently launched a new division, namely Young AFSA, which is a new arbitration association with a focus on promoting knowledge-sharing, skills-building and networking among legal professionals and students between the ages of 18 and 40. Membership is free, making it a highly accessible forum for young professionals interested in arbitration. Young AFSA aims to organize skills-focused programs, seminars and social events for knowledge exchange, as well as to encourage and foster relationships between young professionals across Southern Africa. Young AFSA hosted its first event in November 2023.
Another significant development is that AFSA has joined the LCIA and the ICC International Court of Arbitration in becoming a full member of the International Federation of Commercial Arbitration Institutions (“IFCAI“). With 52 members worldwide, IFCAI aims to build relationships among commercial arbitration centers through the exchange of information and sharing of best practices in arbitration.
A further testament to the quality of South Africa’s arbitration framework is that the AFSA Rules will serve as the model for the long-awaited BRICS Dispute Resolution Framework (“Framework“), as confirmed at the Eighth BRICS Legal Forum held in Johannesburg, South Africa, in early December 2023. Representatives from the Federal Council of the Brazilian Bar Association, the Association of Lawyers of Russia, the Bar Association of India, the China Law Society and the Law Society of South Africa have resolved to have the Framework, which will be modeled on the AFSA modified Rules, ready for adoption and ratification at the next BRICS Legal Forum in 2024.
South Africa is quickly becoming a leading jurisdiction in the arbitration sector and membership of IFCAI will undoubtedly enhance South Africa’s reputation as a seat of international arbitration. These significant developments spearheaded by AFSA in 2023 attest to South Africa’s reputation and commitment to advancing arbitration across Southern Africa. This is further evidenced by the recent AFSA-Southern African Development Community (“SADC“) alliance, which aims to encourage member states to align their arbitration laws with international conventions and standards. The most recent triumph in this regard is the adoption of the International Arbitration Bill, 2023 (“Bill“) by the Malawian Parliament. The Bill is the culmination of proposals put forward by the collaboration between AFSA and the Malawi Law Society, and its adoption opens the way for Malawi to become a part of the esteemed AFSA alliance.
B. CASES
The High Court of South Africa grants authority to proceed to international arbitration
B.1 Lukoil v Natal Energy Resources and Commodities
In Lukoil Marine Lubricants DMCC v. Natal Energy Resources and Commodities (Pty) Ltd (12583/21P) [2023] ZAKZPHC 31 (16 March 2023), the parties entered into a distribution and sales agreement for marine lubricants. This agreement was effective for a period of five years, and it would thereafter be automatically renewed for successive five-year periods. Three years into the agreement, the parties had disputes that were related to stock loss, audits and other issues not noted in the judgment. To salvage the contractual relationship, the parties concluded a settlement agreement and further signed a separate service provider agreement (“Service Agreement(s)“). These agreements included an arbitration clause, which stated that the disputes that arise from these agreements will be resolved by the rules of the London Maritime Arbitrators Association and governed by English law.
Following the conclusion of these contracts, Lukoil Marine Lubricants DMCC (“Lukoil“) alleged that Natal Energy Resources and Commodities (Pty) Ltd (“Natal“) breached the Service Agreement and purported to terminate it. Lukoil then commenced legal proceedings against Natal in the South Africa High Court; in its papers, it requested a repayment of USD 500,000. Natal raised two defenses to the averments made by Lukoil, one of them being that this matter must be resolved by arbitration in terms of London rules. This is because the matter arises from a dispute that is related to the Service Agreement, which has an arbitration clause.
The court, in its decision, held that the application made by Lukoil should be “stayed pending the finalization of the arbitration proceedings in London as this is the most feasible solution in this circumstance.” The court made the decision since Natal argued that the Service Agreement and the settlement agreement both included an arbitration clause, and it would not be fair if this avenue was not fully pursued before taking the matter to the South Africa High Court. The court also relied on Tee Que Trading Services (Pty) Ltd v. Oracle Corporation South Africa (Pty) Ltd and Another (065/2021) [2022] ZASCA 68 (17 May 2022) and stated that based on this case, nothing bars the parties from conducting an arbitration in London.
This case shows that following the judgment in Tee Que Trading Services (Pty) Ltd v. Oracle Corporation South Africa (Pty) Ltd and Another, the courts are more inclined to permit arbitration and will always make sure that they have exhausted the arbitration route before making decisions on a matter. In addition, it shows that the courts have followed an IAA approach, which is an international practice, because in accordance with the IAA, the court is obliged to stay proceedings unless the arbitration agreement is null and void, inoperable or incapable of being performed. Accordingly, the IAA leaves no room for judicial discretion or feasibility considerations; a stay was the only appropriate course of action. This decision will be welcomed by most international companies because resorting to arbitration is feasible and convenient.
B.2 GFE MIR Alloys and Minerals v Momoco International
The High Court, in GFE MIR Alloys and Minerals SA (Pty) Ltd v. Momoco International Limited [2023] ZAGPJHC 946 (24 August 2023), dealt with a situation where an arbitral award was obtained by Momoco International Limited (“Momoco“) under the rules of the China International Economic and Trade Arbitration Commission by a tribunal seated in Beijing. This award required GFE MIRAlloys and Minerals SA (Pty) Ltd (“GFE“) to pay a substantial amount to Momoco. This is because Momoco supplied goods to GFE, but GFE failed to pay Momoco.
Momoco approached the South Africa High Court and applied for the recognition and enforcement of the arbitral award in terms of Section 16 of the IAA. GFE argued that the arbitral award is against public policy because Momoco was guilty of tax evasion in the United Kingdom. Thus, enforcing this arbitral award would be an infringement of Section 18 of the IAA.
The High Court held that GFE had not proven the claim of tax evasion and further held that these allegations do not relate to the application made by Momoco because the tax evasion is a UK matter and is for the UK authorities to deal with. Having been argued before (and dismissed by) the arbitral tribunal, the court was obliged to give regard to the tribunal’s decision, “which is a worldwide tradition.” Considering this, the High Court held that GFE had not proven that the enforcement of the arbitration award would be contrary to public policy and declared the arbitration award to be made an order of the court in accordance with Article 17 of the IAA (Momoco International Limited v. GFE-MIR Alloys and Minerals SA). GFE then applied to the court for leave to appeal the order, making the arbitral award an order of court.
The court dismissed GFE’s application for leave to appeal and continued to recognize the arbitral award as an order of court. The court’s reason for rejecting GFE’s application is because GFE failed to discharge the onus that the arbitral order was against public interest. It is also worth noting that, according to the IAA, arbitral awards are prima facie and enforceable, and GFE failed to meet the burden of proof. The court showed a pro-arbitration approach and stated that a mere allegation of tax evasion is not enough for an arbitral award to be set aside. This shows that the court places a lot of weight on arbitration awards and that parties need to be clear and get their evidence right when trying to have an arbitration award dismissed. In addition, this case shows us that South Africa courts are serious about recognizing and applying the New York Convention.
The author would like to thank George Bullock, Kamogelo Mashigo and Samantha Whitaker for their help in preparing this chapter.
