Arbitration bill to regulate international proceedings

As the world becomes more globalised and international investment interest grows across Africa, a sound international arbitration framework will provide foreign businesses with comfortingly familiar processes. Arbitration is increasingly becoming the preferred mode of commercial dispute-resolution and the chosen path of recourse for the protection of investor rights across the continent.

Foreign businesses are also understandably cautious about litigating disputes in local courts, where it can be difficult to enforce the decisions of foreign courts. International arbitration provides a variety of dispute-resolution mechanisms that are flexible, consent based, robust, expedient and universally understood.

Equally attractive to business is the globally adopted New York Convention, which allows for the relatively simple enforcement of a foreign arbitral decision in national courts, where the assets of a company may lie.

There are 33 African states that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, obliging them to recognise and give effect to arbitral processes undertaken through other signatory states.

With this in mind, the South African government approved the International Arbitration Bill on March 1. When enacted, the bill will regulate international arbitration proceedings in SA, and the enforcement of foreign arbitral awards.

The bill has progressed through the stakeholder engagement process, which included consultations with leading arbitration institutions. The government hopes the bill will be ready to be signed into law in the middle of 2017.

The overhaul is partly due to SA’s Arbitration Act of 1965 no longer reflecting international best practice. After the bill becomes law, domestic arbitration will still be covered by the current act.

It was also partly drafted in response to other jurisdictions, such as Kenya and Mauritius, gaining popularity as arbitration and investment destinations in Africa. By introducing this bill, the government hopes to promote SA as a hub for regional arbitrations, with its attendant skills-development and revenue opportunities.

To modernise the law relating to international arbitrations, the bill will incorporate the South African Law Reform Commission’s recommendations to incorporate the UN Commission on International Trade Law’s model law on international commercial arbitration. The bill incorporates the 2006 revision of the model law that has been adopted by several countries (including Zimbabwe) and is seen as the gold standard for international and domestic arbitration.

The incorporation of the model law will allow for the recognition and enforcement of foreign arbitral award provisions by giving effect to the New York Convention within its ambit. These provisions are currently contained in a separate act.

It will also amend the Protection of Businesses Act of 1978 to remove any reference to arbitration awards from its ambit. The minister of economic affairs’ permission is currently required for the enforcement of certain foreign arbitral awards.

The model law also means a public-interest “veto” by the government over the recognition and enforcement of foreign arbitration awards, with certain exceptions, will be excluded.

The model law provides that international commercial arbitrations with public bodies will be possible. Investor-state arbitrations will be regulated by a special regime under the Protection of Investment Act.

The Protection of Investment Act was passed in 2015 to strengthen SA’s ability to attract foreign investment, increase exports and maintain a balance between the rights and obligations of all investors.

Though it has yet to come into force, the act will largely replace bilateral investment treaties between SA and other countries that typically provided for state-to-state mediation or arbitration as the preferred method of dispute resolution. The Department of Trade and Industry has published draft rules for mediation in investor-state dispute resolution under the Protection of Investment Act.

The reluctance to permit investor-state investment arbitration must be understood in terms of the government’s stance on protecting its “policy space” regarding broad-based black economic empowerment (BBBEE) practices and concerns that international tribunals may not find BBBEE a compelling exception from the international standards of treatments for investors in SA.

The Protection of Investment Act provides for the settlement of investment disputes by arbitration, but only after all domestic remedies have been exhausted. This will certainly affect dispute resolution.

Investor-state international investment law disputes will not fall under the International Arbitration Act, if promulgated in its current form, but will fall under the Protection of Investment Act.

The government’s decision to bring its domestic legislation in line with international best practice should be welcomed.

The International Arbitration Bill is being introduced to allow foreign businesses recourse against and by private or commercial enterprises in SA through locally seated arbitration. Whether the country does become an attractive international arbitration destination remains to be seen.

FOREIGN BUSINESSES ARE ALSO UNDERSTANDABLY CAUTIOUS ABOUT LITIGATING DISPUTES IN LOCAL COURTS