Keynote Address by the Deputy Minister of Justice and Constitutional Development,
the Hon JH Jeffery, MP, at the International Arbitration – the Dawn of a New Era in South Africa Seminar, held at the Johannesburg Stock Exchange Auditorium, Johannesburg, 14 October 2016
Programme Director, Mr Des Williams
Emeritus Professor of the University of Stellenbosch, Prof David Butler,
Former Deputy President of the Supreme Court of Appeal, Judge Louis Harms,
Members of the International Court of Arbitration of the International Chamber of Commerce, The Arbitration Foundation of Southern Africa and the South Africa International Chamber of Commerce
Representatives of White & Case,
Members of the legal profession
Ladies and gentlemen,
Professor Frank D. Emerson, writing in the 1970 Cleveland State Law Review, says that –
“Long before laws were established, or courts were organized, or judges formulated principles of law, men had resorted to arbitration for the resolving of discord, the adjustment of differences, and the settlement of disputes.”
One of the earliest known arbitrators, he says, was King Solomon – noting that the procedure used by Solomon was in many respects quite similar to that used by arbitrators today.
Commercial arbitration was known to the desert caravans in Marco Polo's time and was a common practice among Phoenician and Greek traders.
International arbitration was also known to the ancient world. In a dispute between Athens and Megara for the possession of the island of Salamis, in about 600 B.C., the matter was referred to arbitration, with the island being allotted to Athens.
A boundary line in dispute between the Genoese and Viturians was settled by arbitration in 117 B.C., with the award having been recorded upon a bronze tablet which was unearthed near Genoa.
What these examples show is that the practice of arbitration is not something new or strange – in fact, it seems to be very much part of human nature to want to have one’s disputes arbitrated.
The second important thing it shows is that the practice of arbitration must keep up with the times.
The development of our new International Arbitration Bill indeed brings with it the dawn of a new era in arbitration.
It is how we ensure that the practice of arbitration in our country does keep up with the times.
The new Bill comes at an opportune time for our country to opt into the international standard for the resolution of commercial disputes. Not only does it have the potential to attract foreign direct investment, but also to give greater legal protection to South African investments abroad.
South Africa is a party to the New York Convention. In 1976 South Africa acceded to the Convention without reservation. Furthermore, South Africa enacted the Recognition and Enforcement of Foreign Arbitral Awards Act, 1977 in order to give effect to the principles of the Convention.
The Arbitration Act of 1965 governs arbitration proceedings in South Africa. However, the Act makes no distinction between domestic and international arbitration and the Act is not based on the UNCITRAL model law.
The International Arbitration Bill thus emanates from a report of South African Law Reform Commission dealing with international arbitration.
The main thrust of the Bill is the incorporation of the UNCITRAL Model Law as the cornerstone of the international arbitration regime in South Africa.
The Model Law, as you know, was developed to address the wide divergence of approaches taken in international arbitration throughout the world and to provide a modern and easily adapted alternative to national regimes.
The Model Law defines arbitration as “international” if the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States. This definition is used to determine which arbitration matters qualify as “international” and are therefore subject to the Model Law.
The intention is that the Recognition and Enforcement of Foreign Arbitral Awards Act of 1977 be repealed and substituted by the Model Law which deals expressly with both the recognition and enforcement of foreign arbitral awards and rectifies certain other defects in the wording of the existing legislation regarding the definition of "foreign arbitral award" and the grounds on which recognition and enforcement may be refused.
As the Bill seeks to incorporate the Model Law into South African law, the provisions of the Bill therefore reflect many of the provisions of the Model Law.
It is important to note the transitional arrangements. Provision is made for the Model Law to apply to all international agreements, irrespective of whether the agreement was entered into before or after the commencement of the envisaged legislation.
However, the Bill will not apply to the proceedings for the enforcement of awards under the Recognition and Enforcement of Foreign Arbitral Awards Act or for the enforcement, setting aside or remittal of an award under the Arbitration Act.
It is envisaged that the reforms contained in the Bill will ensure that the arbitration legislation remains at the forefront of international arbitration best practices.
The proposed legislation will not only assist South African businesses in resolving their international commercial disputes, but will ensure that South Africa is an attractive venue for parties around the world to resolve their commercial disputes.
After Cabinet had approved the introduction of the Bill into Parliament, our Department received advice that the UNCITRAL Model Law could be adapted in order accommodate local circumstances.
We therefore thought it expedient to adapt certain provisions of the Model Law in order to cater specifically for South African circumstances rather than to incorporate it as is.
We are now in the process of going back to Cabinet, with the suggested amendments, for noting and endorsement before proceeding with the introduction of the Bill into Parliament. And we expect that it will be introduced before the end of this year.
Some of the proposed amendments include the following:
- The Model Law envisages a State adopting this law to exercise a choice between Options I and Option II in article 7 of the Model Law, regarding the form of an arbitration agreement. It is proposed that Option I be selected because it reflects existing South African law by requiring an arbitration agreement to be in writing.
- Article 9 of the Model Law states the principle that for a court to order interim measures regarding a dispute subject to arbitration is not inconsistent with the arbitration agreement. It does not, however, provide any indication of the scope of the court’s powers. It was therefore suggested that a paragraph be added with a reference to the article which sets out the scope of these powers.
- Article 10 allows State parties the freedom to determine the number of arbitrators for appointment, failing which the default position in the Model Law is three arbitrators. The proposal that the default position should be one arbitrator is in line with existing South African law and also promotes a less expensive process.
- Article 12 provides for an arbitrator to be challenged where there are “justifiable doubts” regarding his or her independence and impartiality. There has recently been an increase in the number of challenges being made in international arbitration. A new paragraph is therefore proposed which sets out the current South African standard regarding removal of an arbitrator on the basis of bias. The other ground for removal which is used in some other jurisdictions is “a real danger of bias” as opposed to “a reasonable apprehension of bias”, the preferred ground in South Africa.
- It is proposed that article 18 be amended to state that each party shall be given a reasonable opportunity, instead of a full opportunity of presenting its case. This is in line with the 2010 UNCITRAL Conciliation Rules and discourages court applications based on minor procedural irregularities. This is also in-line with the approach of the Constitutional Court in the Lufuno Maphaphuli case.
- It is suggested that the term “seat of the arbitration”, which is used in South African practice, be used rather than the term “place of the arbitration” as used in the UNCITRAL text. The wording has been clarified to distinguish clearly between the juridical seat and the geographic location of a hearing.
- A further amendment gives the tribunal express powers to award interest and costs, unless the parties agree otherwise. It is suggested that the tribunal should have these powers, where the parties fail to make their own arrangements. Few sets of international arbitration rules deal with the question of interest.
As we know, arbitration offers many advantages: parties may choose arbitration over litigation because of its neutrality, confidentiality, finality, enforceability, procedural flexibility, and the ability to choose the arbitrators.
A 2015 survey called ‘Improvements and Innovations in International Arbitration’ carried out by the School of International Arbitration at Queen Mary University of London, as part of an empirical investigation into arbitration practices and trends worldwide, found that -
- 90% of respondents indicate that international arbitration is their preferred dispute resolution mechanism, either as a stand-alone method (56%) or together with other forms of ADR (34%).
- “Enforceability of awards” is seen as arbitration’s most valuable characteristic, followed by “avoiding specific legal systems,” “flexibility” and “selection of arbitrators”.
- The five most preferred and widely used seats are London, Paris, Hong Kong, Singapore and Geneva.
- The primary factor driving the selection of a seat is its reputation and recognition.
- Respondents’ preferences for certain seats are predominantly based on their appraisal of the seat’s established formal legal infrastructure: the neutrality and impartiality of the legal system; the national arbitration law; and its track record for enforcing agreements to arbitrate and arbitral awards.
- Respondents expressed the view that the most improved arbitral seat (taken over the past five years) is Singapore, followed by Hong Kong.
I am confident that we will see an African arbitral seat on that list in the very near future, as well as an increased use of African arbitrators.
According to the Global Arbitration Review, statistics from leading global arbitral institutions show that the number of arbitration cases involving African parties, and in particular parties from sub-Saharan Africa, is on the rise.
The London Court of International Arbitration’s figures which show the nationalities of the parties to international arbitrations reflect 5,6% as African in 2014, going up to 6,4% in 2015. Despite this growth in case load, however, it is notable that few of the arbitrators nominated to hear these disputes were African themselves. It is therefore important for arbitral tribunals to be more diverse and to reflect the community of users.
We have many reasons to be positive about the growth of arbitral institutions in Africa.
Africa possesses established arbitration institutions, including the Cairo Regional Centre for International Commercial Arbitration initiated in 1979, the Lagos Regional Center established in 1989, and the Cour Commune de Justice et d’Arbitrage in Cote d’Ivoire established in 2001.
In 2012 we saw the establishment of new arbitral institutions in Africa such as the Kigali Centre for International Arbitration, the Lagos Court of Arbitration, and the LCIA-MIAC Arbitration Centre (a collaborative union between the LCIA in London, the government of Mauritius, and the Mauritius International Arbitration Centre).
Last year the Arbitration Foundation of Southern Africa announced the creation of the China Africa Joint Arbitration Centre Johannesburg (CAJAC) which established South Africa on the international arbitration stage.
The establishment of the CAJAC is particularly important as it will serve as an international arbitration venue for disputes involving parties from China and Africa.
These modern arbitral institutions are attracting international recognition and also means that African lawyers are developing specialist arbitration skills to be able to meet growing demands.
In 2014 Morocco launched an annual arbitration conference – Casablanca Arbitration Days. In conjunction with a number of international arbitral institutions and organisations, this initiative sought to establish Casablanca as a seat of arbitration.
Earlier this year, the International Council for Commercial Arbitration (ICCA) Congress was held in Mauritius. The ICCA conference aimed to showcase the opportunities for arbitration across Africa.
Against the backdrop of all these developments, our new Bill will further stimulate the development of South Africa as a regional arbitration centre.
All of these developments and initiatives also present us - as a country, a region and a continent - with new and exciting opportunities to become an important role-player in international arbitration.
I thank you.