The International Arbitration Bill and the future of arbitrations in South Africa

“The vast bulk of Africa-related international arbitration cases are resolved in Europe.” Most treaties concluded by the Republic of South Africa (‘RSA’) do not require the exhaustion of domestic remedies before approaching an international tribunal. The case of Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1) (‘Piero Foresti’) has been cited as the case that galvanised the government of South Africa to take steps in international arbitration. In the Piero Foresti case, foreign investors filed an expropriation claim for their mineral rights against the government of South Africa. The matter was settled on merit. The case revealed how South Africa’s domestic policies were vulnerable to challenges by an international tribunal. To curtail future challenges, a review process was initiated that resulted in the termination of the bulk of its Bilateral Investment Treaties (BITs). The review process recommended an overhaul of its legislative framework. It recommended new pieces of legislation which lead to the enactment of several laws – concerning investment protection (Protection of Investment Act 22 of 2015), expropriation (Expropriation Bill of 2015 and the Property Valuation Bill), and arbitration (International Arbitration Bill of 2015).

The International Arbitration Bill

Since Piero Foresti, the termination of BITs has received a significant amount of political attention in the RSA and investment community. Today, arbitrations (international and domestic) are currently governed by the Arbitration Act No 42 of 1965. However, the Act has been criticised as an old piece of legislation no longer suited for current arbitration developments since its enactment. To rectify the 51-year old piece of legislation, the government of the RSA introduced the International Arbitration Bill in 2015 to regulate arbitrations concerning foreign investors. The Bill effectively repeals the old piece of legislation (Recognition and Enforcement of Foreign Arbitral Awards Act, 1977 and incorporates the UNCITRAL Model Law.

UNCITRAL Model Law

In the explanatory note on the Bill, the government asserts that the incorporation of the Model Law “serves as the cornerstone of the international arbitration regime in South Africa”. The UNCITRAL Model Law serves as a guidance tool for States reforming and modernising their arbitral laws. It further provides the main features that should part of the legislation such as procedures, composition, jurisdiction and enforcement of the arbitral awards.

The new arbitration framework is on the par with international standards as it competes favourably with equivalent international arbitration legislation in other jurisdictions. Concretely, this aligns the Bill with international best practice and paves the way for South Africa as a hub for international arbitrations in Africa. Thus the government is confident that the Bill will be effective. However, it is important to note that domestic arbitrations will continue to be regulated by the Arbitration Act.

Criticism of an Arbitration Tribunal

On the one hand, not many stakeholders (particularly foreign investors, judges) are too excited about the new piece of legislation. The Bill will establish a new dispute settlement mechanism for international arbitrations. Most foreign investors rely on investment treaties as a gateway to treaty-based international arbitration. Thus the absence of that option has resulted in many of South Africa’s trading partners, raising concerns about the protection that will be afforded to foreign investors under new arbitration regime.

Some South African judicial authorities have expressed the view “that arbitration undermined the pace of judicial transformation in South Africa”. Other issues of concern that may arise from establishing an international tribunal include issues such as; the impartiality of South African courts in the face of domestic public interests and their duty to upholding the rights embedded in the Constitution, time periods allocated to each case, the appointment of qualified arbitrators who are experts in matters of international arbitration. and finally the absence of an appeal mechanism. All appeals are to be conducted domestically and it is the court’s discretion to confirm any appeals. The right to appeal should be available to any investor. This despite, the fact that there is no international treaty that makes a provision for an appeal in all existing investment treaties.

Advantages of an Arbitration Tribunal

Equally important to note is that there are advantages to establishing a domestic tribunal. The concept of an international tribunal in South Africa has advantages to it. In that, the tribunal has examples of established arbitration structures that it could emulate such as the Permanent Court of Arbitration or London Court of Arbitration etc. A tribunal of this nature would be open to other countries with dispute resolutions. South Africa has established the China-Africa Joint Arbitration Centre (‘CAJAC’). This forum will function as the principal forum for commercial dispute resolution between Chinese and the other African States.

A system like this would establish an independent arbitral mechanism. It would respond to public concerns by offering strict guarantees of independence, transparency and legitimacy. It would bring much-needed coherence to the global system of investment dispute settlement. It would be more efficient than the current multitude of bilateral investment dispute resolution mechanisms. A tribunal would ensure a uniform approach to international arbitration by aligning South African domestic and international law together. It would take into account South Africa’s unique position and history. Economic costs of international arbitration will be significantly diminished for South Africa if they establish an international arbitration tribunal.

Conclusion

The establishment of a legislative framework regulating a domestic arbitration tribunal is an optimistic step towards establishing South Africa as a destination for international arbitration. It lays the necessary groundwork for future arbitrations in South Africa. It also signals a new era of international arbitration for South Africa. The Bill also modernises the archaic Arbitration Act by incorporating international standards from UNCITRAL Model Law. Despite this, some investors are still sceptical about the impartiality of the tribunal. Thus the tribunal has yet to be tested. Its success will have an impact on how investors view South Africa as a destination for arbitration.

Faith Tigere is a Candidate Master of International Law and Economics at the World Trade Institute in Bern, Switzerland.

Cite as: Faith Tigere, “The International Arbitration Bill and the future of arbitrations in South Africa”, Völkerrechtsblog, 17 May 2017, doi: 10.17176/20170517-094240.