International Arbitration Bill [B10-2017]: public hearings

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Justice and Correctional Services

12 September 2017
Chairperson: Dr M Motshekga (ANC)
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Meeting Summary

The Committee heard submissions from the Victoria Mxenge Group, Arbitration Foundation of South Africa (AFSA), the China-Africa Joint Arbitration Centre (CAJAC) and the Maritime Law Association (MLA) on the International Arbitration Bill. 

The Victoria Mxenge Group unconditionally supported the Bill, but expressed concerns on the definitions of ‘arbitration agreement’ and ‘international,’ as well as the ambiguous framing of ‘context’ and ‘public policy of the Republic.’

Arbitration Foundation of South Africa and the China-Africa Joint Arbitration Centre also supported the Bill and commended it for being of high standard. The Bill satisfies core features of international commercial arbitration such as agreement to arbitrate, choice of arbitrators, venue of arbitration tribunal, and enforcement of award. Disputants prefer other countries over South Africa because it has not domesticated the UNCITRAL Model Law on International Commercial Arbitration.

Maritime Law Association expressed concern that clause 7(2) of the Bill has the unintended consequence of ousting section 3 of the Carriage of Goods by Sea Act, which enables local importers to institute claims against international shipping lines and their insurers in South African courts. Section 3 thus protects local importers from the ‘prohibitive’ costs involved in foreign litigation. The ultimate effect of clause 7(2) is to restrict the ability of South Africans to pursue remedies in South African courts, leaving them only the option of international arbitration. Clause 7(2) is prejudicial to importers and marine insurers, and ultimately, South African consumers at the receiving end of import costs. This is because bills of lading issued under contracts of carriage usually include arbitration clauses requiring consignees to seek remedies in foreign courts. Clause 7(2) could contravene section 34 of the South African Constitution, which gives everyone the right to have a dispute decided in a fair public hearing before a court or independent and impartial tribunal.

The Department of Justice and Constitutional Development was pessimistic about finding a definition of 'public policy' that will be acceptable to all. Members expressed concern that the Victoria Mxenge Group submissions lack concrete suggestions for improving the Bill and asked them to submit these. Members asked for clarity on the commercial law advantage of domesticating the Model Law on International Arbitration. They expressed concern that language difficulties and conflict of laws could affect arbitration if one did not stipulate a South African had to be part of the forum. The Arbitration Foundation responded that public policy considerations will protect South Africa in cases of contracts unrecognised by South African law and use is made of interpreters.

Members disagreed that clause 7(2) of the Bill contravenes section 3 of the Carriage of Goods Act or section 34 of the Constitution. This is because arbitration is an alternative dispute resolution method which is determined by an agreement between parties.

MLA explained there are no equal party agreements in bills of lading. Before the goods leave their countries of origin, there is no negotiation on the accompanying bill of lading. Historically, shipping companies do not budge on the arbitration clause in bills of lading. Section 34 of the Constitution is implicated because this right seeks to remove obstacles in the way of litigation such as cost and unequal negotiating power. While South Africa should be promoted as an arbitration destination, it would be catastrophic to deny importers the protection of section 3 of the Carriage of Goods Act because of its knock-on effect on South African consumers.
 

Meeting report

The Chairperson apologised to the Speaker of Parliament on behalf of the Committee for failure to handle the Speaker’s referral. He explained that the apology is to correct an impression that the Committee and the Speaker do not respect the Constitution.

Victoria Mxenge Group submission
Adv Gcinumuzi Malindi Group leader of Victoria Mxenge Group of Advocates Mr Malindi stated that the Victoria Mxenge Group supports the passage of the Bill. However, it has concerns on some issues. These are definitions of the words ‘arbitration agreement’ and ‘international,’ the ambiguous meaning of ‘the context’ in section 2, and the need to define ‘public policy of the Republic’ in section 7(1)(b). The Group also seeks the redrafting of clauses 10(2) and 15, as well as the replacement of the word ‘shall’ with ‘must’ in clause 16(1). Finally, the Group proposes the inclusion of a new clause 15A. Mr Malindi stressed that legislation is required because continental arbitrators are seldom used in international arbitrations.

Discussion
Mr L Mpumlwana (ANC) asked Mr Malindi why he did not address some of the points in his written submission. He queried the need to define 'public policy', given that public policy is best interpreted on a case by case basis. On the paucity of international arbitration in South Africa, Mr Mpumlwana noted that jurisdiction for arbitration is usually stipulated in the agreement under arbitration.

Mr Lawrence Bassett, Chief Director of Legislation Development in the Department of Justice and Constitutional Development (DoJCD), added that defining 'public policy' will be problematic, since no definition may be acceptable to all stakeholders in arbitration.
 
Responding, Mr Malindi stated that ‘public policy’ needs clarification because South Africa is still new in the international arbitration arena. Also, the South African Constitution regards South Africa as a developmental state, whose goals (including in arbitration) need to be spelt out to avoid defeating the objectives of development. He cited South Africa’s water programme arrangement with Lesotho as an example of clear policy goals. Public policy needs to be defined broadly and in accordance with the Constitution because the concept of public policy is difficult to define. The Constitution can be used as a guide for this, because public interest needs to be protected from the ‘vagaries of international business.’

The Chairperson asked if consultations were made with the African Union and the Southern African Development Community that South Africa should be the seat of arbitration in the African region.

Mr Malindi replied that certain arbitration centres are recognised as centres of excellence. The challenge is for South Africa to ensure that the international community has faith in South Africa to play an impartial and independent role in international arbitration and not be influenced by its national interests. So, if public policy is properly defined, parties will know which areas of their disputes are covered under arbitration or fall under South Africa’s national interests.

Mr Mpumlwana stated that the Group’s submission lacks concrete suggestions on how to implement amendments to the Bill.

The Chairperson asked Mr Malindi to make a written submission on Mr Mpumlwana’s concerns.

Arbitration Foundation of South Africa / China-Africa Joint Arbitration Centre submission
Adv Lindiwe Nkosi-Thomas, Director of the China-Africa Joint Arbitration Centre (CAJAC), stated that the submission is on behalf of the Arbitration Foundation of South Africa (AFSA) and CAJAC. She expressed the support of these two bodies for the International Arbitration Bill because it is of high standard. She explained that CAJAC is a Johannesburg based body, which works in partnership with ASFA and the China Law Society. It is composed of 51-member states who arbitrate on Chinese-Africa disputes.

South Africa has been disadvantaged in international arbitration because it has not domesticated the UNCITRAL Model Law on International Commercial Arbitration of 1985 (Model Law). Both ASFA and CAJAC therefore support the Bill to modernise the international arbitrational legal landscape of South Africa. The core features of international commercial arbitration, which the Bill satisfies are:
• Agreement to arbitrate
• Choice of arbitrators
• Venue of the arbitration tribunal
• Enforcement of arbitration awards.

Adv Nkosi-Thomas stated that the International Arbitration Bill will improve South Africa’s international standing. She cited a researcher linked to North-West University, Potchefstroom showing that South Africa is highly ranked for law institutions which is important in attracting Foreign Direct Investment (FDI). From 2012 to 2016, the World Economic Forum Global Competitiveness Report ranked it 38th out of 140 countries. It is ranked 24th for judicial independence (beating the USA and Austria), 14th for efficiency of legal framework for settling disputes, 17th for efficiency of legal framework in challenging regulations (higher than the USA, Denmark, and Australia), and 11th for trustworthiness in its financial markets, and 2nd in regulation of security exchanges. These figures will improve with the passage of the Bill. The Supreme Court of Appeal has also declared that South Africa should be promoted as a venue for international arbitration. ASFA and CAJAC therefore support the Bill unconditionally. On the independence and impartiality of arbitration tribunals, ASFA and CAJAC affirm that the nationality composition of arbitrators should be left to the disputing parties in line with international best practice on contractual autonomy.

Discussion
Mr Mpumlwana queried the rationale for choice of arbitrators by disputing parties, given that language is involved. He noted that rigid adherence to the Model Law might not be feasible in the enforcement of arbitration awards. For example, Japanese and Chinese business people with no cultural affinity to South Africa could be allowed to enforce arbitration awards in South Africa. How are South African courts expected to enforce an arbitration award based purely on a Chinese or Japanese arbitrator?

Ms M Mothapo (ANC) thanked Adv Nkosi-Thomas for her submission. She asked her to explain her point that non-domestication of the Model Law has unfairly prejudiced South Africa.

Adv Nkosi-Thomas explained that the Model Law was adopted in 1985 to encourage and harmonise the enforcement of arbitration awards, thereby reducing fragmentation in enforcement of awards. The Model Law therefore seeks to bridge diverse legal systems. On the language concern raised by Mr Mpumlwana, interpreters assist to bridge the language gap. Language is not a problem because disputants look for independent and impartial arbitrators. On enforcement in South African courts, the passage of the Bill will help the courts to enforce arbitration awards, except where it affects public policy. Disputants prefer Mauritius over South Africa because the Model Law has not been domesticated in South Africa. This preference affects South Africa’s foreign direct investment figures.

Mr Mpumlwana sought clarity on the commercial law advantage which domesticating the Model Law will give to South Africa. He gave the example of marijuana legalisation in some countries. What happens when a dispute for a contract that is not recognised under South African law is expected to be enforced in South Africa? Given that English Law is the usual choice of law in international arbitration, would not a mandatory inclusion of a South African in an international arbitration panel protect South Africa?

Adv Nkosi-Thomas responded that public policy considerations will protect South Africa in cases of contracts unrecognised by South African law. Judges will be mindful of due process in handling conflict of laws.

Maritime Law Association (MLA) submission
Mr Peter Edwards, an executive of the Maritime Law Association of South Africa from Dawson, Edwards & Associates, stated that in principle the MLA supports the International Arbitration Bill. However, the Bill is prejudicial to importers and marine insurers, and ultimately, South African consumers, who are at the receiving end of import costs. He explained that bills of lading issued under contracts of carriage usually include arbitration clauses requiring consignees to seek remedies in foreign courts. Shipping companies never budge on this arbitration clause, which insist on arbitration in the country of origin of the goods entering South Africa. Section 3 of the Carriage of Goods by Sea Act of 1986 protects local importers from the ‘prohibitive’ costs involved in foreign litigation by allowing them to institute claims against international shipping lines and their insurers in South African courts. However, clause 7(2) of the Bill has the unintended consequence of ousting section 3 of the Carriage of Goods Act.

Section 3(1) states: ‘Notwithstanding any purported ouster of jurisdiction, exclusive jurisdiction clause or agreement to refer any dispute to arbitration, and notwithstanding the provisions of the Arbitration Act 1965 … any person carrying on business in the Republic and the consignee under, or holder of, any bill of lading, waybill or like document for the carriage of goods to a destination in the Republic or to any port in the Republic, whether for final discharge or for discharge or for discharge for further carriage, may bring any action relating to the carriage of the said goods or any such bill of lading, waybill or document in a competent court in the Republic.’

Mr Edwards stated that the ultimate effect of clause 7(2) is to restrict the ability of South Africans to pursue remedies in South African courts, leaving them only the option of international arbitration. It is international practice to adopt domestic law as in section 3(1). Clause 7(2) may also contravene section 34 of the Constitution, which gives everyone freedom to choose an arbitration forum. The MLA therefore proposes that clause 7(2) be amended thus: ‘Arbitration may not be excluded solely on the ground that an enactment confers jurisdiction on a court or other tribunal to determine a matter falling within the terms of an arbitration agreement. This provision does not apply to disputes falling within the provisions of section 3 of the Carriage of Goods by Sea Act No 1 of 1986.’ MLA submits that this provision will protect South African businesses and claimants whose cargoes are discharged in South Africa from exorbitant foreign litigation. It will also ensure they have the access to justice implied by section 34 of the Constitution.

Mr S Swart (ACDP) asked if the impugned clause 7(2) is an unintended consequence of the Bill, in which case a suitable amendment to the Arbitration Act might avoid this unintended consequence.

Mr B Bongo (ANC) stated that section 34 of the Constitution is not affected by the MLA’s proposed insertion. This is because arbitration is an alternative dispute resolution. Accordingly, it is determined by parties’ agreements. Since parties choose the terms of the arbitration, bills of lading clauses should not be affected by clause 7(2) of the Bill. The Bill does not rob parties of their freedom to choose an arbitration venue or composition. In that sense, it does not affect section 3 of the Carriage of Goods Act.

Mr Mpumlwana asked the MLA whether section 34 of the Constitution is affected by clause 7(2). He asked MLA to consider the advantages and disadvantages of the model legislation on arbitration with a view to giving the Committee an opinion on a compromise and reframe its proposal for amendment to clause 7(2).

Mr Edwards affirmed that clause 7(2) is an unintended consequence. He affirmed that section 3 of the Carriage of Goods Act is affected by clause 7(2) of the Bill, since bills of lading restrict the ability of traders to conduct arbitration in venues of their choice. He cited examples of goods shipped from Paris with bills of lading stipulating that arbitration be in that city. Given that it is very expensive to litigate abroad, section 34 of the Constitution is implicated because it seeks to remove obstacles in the way of litigation, in this case cost and unequal negotiating power. He reaffirmed that historically, shipping companies do not budge on the arbitration clause in bills of lading. There are no equal party agreements in bills of lading. Before the goods leave their countries of origin, there is no negotiation on the accompanying bill of lading. While South Africa should be promoted as an arbitration destination, the benefits of section 3 of the Carriage of Goods Act should not be denied to local importers and, ultimately, South African consumers who bear the knock-on effect of high import expenses.

On the need for the balance or compromise called for by Mr Mpumlwana, Mr Edwards noted that in the recent MLA conference in Durban, Judge Wallis of the Supreme Court of Appeal observed that arbitration disputes are traditionally taken to London. This preference is despite the fact that South Africa has the legal capacity to handle arbitration. Inasmuch as it is desirable to make South Africa a hub of international arbitration, it would be catastrophic to deny importers the protection of section 3 of the Carriage of Goods Act because of its knock-on effect on consumers.

The Chairperson asked Mr Edwards whether he had networked with the Victoria Mxenge Group, AFAS, and CAJAC on the International Arbitration Bill.

Mr Edwards replied in the negative but acknowledged the need for dialogue amongst stakeholders in international arbitration.

Mr Mpumlwana sought clarity on how clause 7(2) of the International Arbitration Bill overrides section 3 of the Carriage of Goods Act.

Mr Swart asked if the MLA wants the same exemption protection (for South African local importers or cargo owners) offered by the Arbitration Act to be in the International Arbitration Bill. He remarked that the problem seems to be a conflict of laws, and a fear by the MLA that the International Arbitration Bill will supersede the Arbitration Act.

Mr Edwards replied that clause 7(2) will create an interpretation problem that ousts the protection offered by section 3 of the Carriage of Goods Act, and will give shipping lines an advantage against South African importers. He promised that the MLA will apply its mind on whether and how to reframe its proposal for amendment to clause 7(2). He concluded that the dangers posed to South African importers and consumers by retaining clause 7(2) outweigh its benefits.

The Chairperson advised the MLA to network with other stakeholders such as Victoria Mxenge Group, ASFA and CAJAC. He remarked that the submissions on the Arbitration Bill illustrate the need to bridge the maritime and international law knowledge gap between mostly white, male legal practitioners and previously disadvantaged black African legal professionals.

He thanked the presenters and adjourned the meeting.

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