Keynote Address by the Deputy Minister of Justice and Constitutional Development,
the Hon JH Jeffery, MP, at a seminar hosted by the Mandela Institute of the University of the Witwatersrand’s School of Law, held at the Chalsty Centre, Law School Building, West Campus, Wits University, 12 July 2017
Professor Tumai Murombo, Director of the Mandela Institute
Professor Engela Schlemmer, Acting Head of the Wits School of Law
Mr Des Williams, Chairperson of the Council of the ICC South Africa
Members of the legal profession
Members of academia
Ladies and gentlemen
Professor Szalai of the University of Loyola wrote a book about the development of modern arbitration laws and he called it “Outsourcing Justice.”
Private arbitration, says the book, can be “a polar opposite, in almost every way, to the public court system.”
The title is indeed thought provoking - Is arbitration really the outsourcing of justice? Are we taking justice away from our courts?
Does arbitration undermine national courts?
And what role are courts to play in arbitrations?
Before one can answer those questions, once has to consider the benefits of arbitration. The benefits of arbitration are well-known and have been for centuries.
Zephaniah Swift sang the praises of arbitration in his 1795 work called “A System of the Laws of the State of Connecticut.” He writes, rather dramatically, that -
“[Arbitration] is so fair, liberal and friendly, that it is highly favoured by the law, and as the parties elect their own judges, courts are exceeding cautious about setting aside their awards.
Arbitrators'... determinations are definitive, and subject to no appeal: nor can their sentences be reviewed or reconsidered by any court of law or equity. They are not tied down to the same strictness, formality and precision as courts of law. While they have greater latitude in the mode of proceeding than courts of law, they have ampler powers to… perfect justice between the parties in the decision of the matters in dispute.
This freedom from legal formality and nicety, and this extensive latitude in the mode of proceeding, furnish arbitrators with much better advantages to adjust and settle long, intricate, and embarrassed controversies, than courts of law can possibly have.”
But not all legal scholars were equally impressed.
Circuit Justice, Joseph Story, in the 1845 case of Tobey v County of Bristol, writes:
“Now we all know, that arbitrators...cannot compel the production of documents, and papers and books of account, or insist upon a discovery of facts from the parties under oath.
They are not ordinarily well enough acquainted with the principles of law or equity, to administer either effectually, in complicated cases; and hence it has often been said, that the judgment of arbitrators is but rusticum judicium...
Indeed, so far as the system of compulsive arbitrations has been tried in America, the experiment has not, as I understand, been such as to make any favorable impression upon the public mind, as to its utility or convenience.”
With international arbitrations for 2016 hitting record numbers, if Justice Story were here today, he may very well have had to reconsider his position.
As we know, arbitration offers many advantages. Arbitration is typically faster, less formal and more tailored to the particular dispute than court proceedings while, at the same time, retaining the benefits of impartial expert adjudication.
Possibly the biggest benefit of arbitration is that it is a method of dispute resolution that is chosen and controlled frequently by the parties themselves.
Over time, international arbitration has developed as a practical, efficient and well-established method of settling commercial disputes without resorting to the courts.
Arbitration – and thus also the broader administration of justice – is not something static, but develops and must keep up with the times.
A 2015 survey carried out by Queen Mary University of London, as part of an investigation into arbitration practices and trends worldwide, found that 90% of respondents indicated that international arbitration was their preferred dispute resolution mechanism, either as a stand-alone method or together with other forms of ADR.
Importantly, especially from a South African perspective, respondents’ preferences for certain seats for arbitration are predominantly based on their appraisal of the seat’s established formal legal infrastructure – in other words:
- the neutrality and impartiality of the legal system;
- the national arbitration law; and
- its track record for enforcing agreements to arbitrate and arbitral awards.
I will return to the issue of the importance of the legal system and the national arbitration law shortly.
As you know, South Africa is a party to the New York Convention.
In May 1976, South Africa acceded to the Convention without reservation and the Convention has been in force since August 1976.
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. This Act makes no distinction between domestic and international arbitration and the Act is not based on the UNCITRAL Model Law.
The new International Arbitration Bill emanates from an investigation of the South African Law Reform Commission.
Concerns were raised that the Recognition and Enforcement of Foreign Arbitral Awards Act is not in alignment with international developments, that the Arbitration Act is inadequate for purposes of international arbitration and the South African arbitration law is outdated in many respects and thus needs revision and updating in order to reflect and serve modern commercial needs.
The main thrust of the Bill is the adoption of the UNCITRAL Model Law as the cornerstone of the international arbitration regime in South Africa.
The Model Law is the current international benchmark for arbitration laws as it 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 outdated national regimes.
It is intended for adoption by individual countries and has been adopted by many Commonwealth and other countries, including important trading partners of South Africa, both within SADC and beyond.
Of the 54 members of the African Union, more than half have modern arbitration legislation for international arbitration.
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.
Our Bill provides that the Arbitration Act is not applicable to arbitration matters which are subject to the Model Law. The purpose of this exclusion is to provide certainty for foreign users of the Model Law in South Africa so that they will know that they do not have to search outside the enacting legislation for possible discrepancies.
The Bill, subject to the provisions of section 12 of the Promotion and Protection of Investment Act binds public bodies, and applies to any arbitration in terms of an arbitration agreement to which a public body is a party.
Investor-state arbitrations will be regulated under the Protection of Investment Act. The reluctance to permit such arbitrations under the Arbitration Bill must be understood in terms of Government protecting our sovereignty as a nation and our policy space.
Clause 6 of the Bill seeks to give the Model Law the force of law in the Republic. Since the primary goal of the Model Law is to reduce discrepancies between procedural laws affecting international commercial arbitration, it is desirable that the Model Law should be interpreted and applied uniformly.
The Bill also makes provision for the confidentiality of arbitral proceedings where such proceedings are held in private. Where an organ of State is a party to arbitration proceedings, such proceedings must be held in public due to the public interest in the matter.
In terms of clause 16, a foreign arbitral award may be recognised in the Republic as required by the Convention.
Furthermore, a foreign arbitral award must, on application, be made an order of court, and be enforced in the same manner as any judgment or order of court, provided it complies with the provisions of the clauses of the Bill dealing with the recognition and enforcement of foreign arbitral awards.
With regard to the transitional arrangements, the Model Law will apply to all international agreements, irrespective of whether the agreement was entered into before or after the commencement of the Bill.
Last week, the Portfolio Committee on Justice and Correctional Services extended invitations for written submissions on the Bill and submissions must be received by no later than 28 July. Interested persons may also indicate if they wish to make a verbal presentation. Public hearings on the Bill will then be held in Parliament.
Back to the earlier question – are we “outsourcing justice” by arbitrating and by creating new legislation for arbitration?
I would argue not – as arbitration is indeed part and parcel of the administration of civil justice.
And what about our courts?
Well-known international arbitrator, Prof Julian D M Lew, writing in a 2009 American University International Law Review states, rather poetically, that “National court involvement in international arbitration is a fact of life as prevalent as the weather.”
He argues, succinctly, that despite the autonomous nature of arbitration, no system of dispute resolution can exist in a vacuum.
Without prejudice to autonomy, international arbitration does regularly interact with national jurisdictions for its existence to be legitimate and for support and effectiveness. This assistance of the national courts takes on different forms at different stages of the arbitration process because:
(1) national laws are required to recognize and enforce the agreement to arbitrate and enforce any award;
(2) national laws are required to support the arbitration process during the arbitration;
(3) international arbitration has established certain fundamental standards that require policing at the national level.
These points have been proved to be correct by our own courts.
For example, in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews the Constitutional Court stressed that the decision to refer a dispute to private arbitration is a choice which as long as it is voluntarily made should be respected by the courts.
Because private arbitration agreements are consensual the court should be slow in exercising its discretion to entertain a dispute where parties have agreed to arbitration.
But this does not mean that the court has no role to play.
In Mmethi v DNM Investment CC t/a Bloemfontein Celtics Football Club the Court held that an arbitration clause or agreement does not preclude a party from initiating court proceedings to have the dispute adjudicated by the court.
What an arbitration clause does is that it obliges the parties in the first instance to refer the dispute to arbitration. A party seeking to invoke and rely on the arbitration clause must request a stay of such proceedings.
The court retains the ultimate discretion whether or not to entertain the matter or hold the parties to their agreement and the court will entertain the matter where special circumstances exist to do so.
So if we look at the two important points, mentioned in the 2015 survey, which influence parties’ preferences for certain arbitration seats - that I mentioned at the beginning – namely the importance of the legal system and the national arbitration law, we are sure that we are on the right track.
For arbitration to work in our country, our courts and our justice system have to work.
Our courts are pro-arbitration, they recognize and enforce arbitration agreements and do support and respect the arbitration process.
The new Bill, coupled with the role of our courts, is thus not the outsourcing of justice but indeed is a way of expanding the delivery of justice in a way that ultimately enhances access to justice.
The new Bill also brings with it increased opportunities for our country.
The reforms contained in the Bill will ensure that the arbitration legislation remains at the forefront of international arbitration best practices.
I am also confident that the new Bill will assist businesses in resolving their international commercial disputes and will ensure that South Africa is an attractive venue for parties around the world to resolve their commercial disputes. It will also attract foreign direct investment.
With this in mind, I have no doubt that we will see South African as a preferred arbitral seat in the very near future.
I thank you.