The Select Committee met to be briefed by the Department of Justice and Constitutional Development on the International Arbitration Bill [B10B-2017] by the State Law Adviser, who said that the Bill aimed to adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law as the cornerstone of the international arbitration regime in South Africa.
The briefing explained the bill clause by clause, dealing with the framework on how international arbitration was to be conducted in South Africa. Currently, international arbitration in South Africa was governed by the Recognition and Enforcement of Foreign Arbitrary Awards Act, 1977 (Act 40 of 1977) and the Arbitration Act, 1965 (Act 42 of 1965). The former Act seeks to give effect to the Convention on the Recognition and Enforcement of Foreign Arbitrary Awards, signed in New York at the 1958 New York Convention. The Model Law, as a framework for the conduct of arbitrary proceedings, was adopted by the UNCITRAL in 1985, and amended in 2006. It was consistent with the New York Convention.
The Committee agreed to conduct public hearings on the International Arbitration Bill before Parliament rises at the end of November or early December.
Members asked questions of clarity with regard to what the danger was of a foreign company entering into a foreign agreement with a South African party where serious malpractices were suspected, what the interaction between the proposed new legislation and the existing Act of 1965 was, why the process started at the arbitration level rather than at the mediation level, who the arbitrators were, how they were appointed, and why international arbitration was regulated by the New York Convention.
Department of Justice and Constitutional Development on International Arbitration Bill
Prof. David Butler, State Law Adviser: Department of Justice and Constitutional Development (DOJ&CD) said that the International Arbitration Bill emanated from an investigation of the South African Law Reform Commission (SALRC). The Bill aimed to adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law as the cornerstone of the international arbitration regime in South Africa. The UNCITRAL was established in 1966 by the UN because of the dramatic expansion of world trade, among other factors, and therefore the need for uniform rules for international trade. The role of the UNCITRAL was to address the wide divergence of approaches taken in international arbitration throughout the world, by promoting unification and harmonization of the law, and to provide a modern and easily adapted alternative to outdated national regimes. The development of the Model Law was one of the achievements of the UNCITRAL. The Model Law was a set of model legislative provisions that states could adopt by enacting them into national law. Arbitration denoted a method of dispute resolution that was chosen and controlled by the parties.
Currently, international arbitration in South Africa was governed by the Recognition and Enforcement of Foreign Arbitrary Awards Act, 1977 (Act 40 of 1977) and the Arbitration Act, 1965 (Act 42 of 1965). The former Act seeks to give effect to the Convention on the Recognition and Enforcement of Foreign Arbitrary Awards, signed in New York, at the 1958 New York Convention. The Model Law, as a framework for the conduct of arbitrary proceedings, was adopted by the UNCITRAL in 1985, and amended in 2006. It was consistent with the New York Convention. The object of the Model Law was to promote the harmonization and uniformity of national laws relating to international arbitration procedures. It was envisaged that the reforms contained in the Bill would ensure that the arbitration legislation remained at the forefront of the international arbitration best practices
Prof. Butler said Clause 1 of the Bill, among others, defines an arbitration agreement as an arbitration agreement referred to in Article 7 of the Model. Article 7 defines an “arbitration agreement’’ as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
Clause 2 deals with the interpretation of matters contained in Chapter 2 of the Bill, while Clause 3 outlines the objects of the Bill. The Model Law defines an arbitration as international if the parties to an arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different states.
Clause 4 provides in clause 4(1), 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 would know that they do not have to search outside the enacting legislation for possible discrepancies. Clause 4(2) provides that section 2 of the Arbitration Act applies for purposes of Chapter 3 of the Bill. Chapter 3 of the Bill deals with the recognition and enforcement of foreign arbitral awards.
Clause 5 provides that the Bill, subject to the provisions of section 12 of the Promotion and Protection of Investment Act, 2015, binds public bodies, and applies to any arbitration in terms of an arbitration agreement to which a public body is a party.
Clause 6 seeks to give the Model Law the force of law in the Republic.
Clause 7 deals with matters that are subject to international commercial arbitration and provides that any international commercial arbitration dispute which the parties have agreed to submit to arbitration under an arbitration agreement, may be determined by arbitration, except where a dispute is not capable of determination by arbitration or the arbitration agreement is contrary to public policy.
Clause 8 empowers an arbitrary tribunal or court to refer to UNCITRAL reports when interpreting Chapter 2 of the Bill, as well as the Model Law. This clause is intended to provide guidance to arbitrary tribunals and the courts when exercising their powers and functions under the Bill and in interpreting its provisions. 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.
Clause 9 provides arbitrators, arbitrary institutions and employees of arbitrators with immunity in respect of any act or omission in the discharge of their functions done in good faith.
Clause 10 provides that the parties to an arbitration agreement may agree that arbitrary proceedings be consolidated with other arbitrary proceedings or that concurrent hearings be held.
Clause 11 makes provision for the confidentiality of arbitrary 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.
Clauses 12 and 13: Clause 12 grants the parties to an arbitration agreement the right to refer the matter to conciliation before or after the dispute is referred to arbitration. This would encourage the amicable settlement of a dispute between the parties. The parties who intend to settle their dispute by way of conciliation may, in terms of clause 13, agree to use the UNCITRAL conciliation rules set out in Schedule 3 to the Bill.
Clauses 14 and 15: Clause 14 contains definitions for purposes of Chapter 3 of the Bill, dealing with the recognition and enforcement of foreign arbitrary awards. Clause 15 provides that an arbitral award is deemed to be made at the place of arbitration determined in accordance with the provisions of Articles 20 and 31 of the Model Law. Article 20 provides that the parties are free to agree on the place of arbitration, while Article 31 deals with the form and contents of an award.
Clause 16: In terms of this clause, a foreign arbitrary award may be recognized in the Republic as required by the Convention on the Recognition and Enforcement of Foreign Arbitrary Awards, 1958. Further, 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 the court, provided it complies with the provisions of the clauses of the Bill dealing with the recognition and enforcement of foreign arbitral awards, evidence to be produced by a party seeking recognition or enforcement of an award and refusal of recognition or enforcement of an award, respectively. These clauses are 16,17 and 18.
Clause 17 provides that a party seeking the recognition or enforcement of a foreign arbitrary award must produce the original award and the arbitration agreement, and a certified copy of such award and agreement. If the agreement or award is in a language other than one of the official languages of the Republic, such an award or agreement must be accompanied by a sworn translation. The court has a discretion to accept any other document as sufficient proof of the agreement or award if it considers it appropriate to do so.
Clause 18 provides for circumstances in which a court may refuse to recognise or enforce a foreign arbitrary award. If an application for the setting aside or suspension of an award has been made to a competent authority, the court may, if it considers it appropriate, adjourn its decision, and on the application of the party claiming recognition or enforcement of the award, order the other party to pay security.
Clause 19 provides that the provisions of Chapter 3 of the Bill do not affect any other right to rely upon, or to enforce, a foreign arbitrary award, including the right conferred by Article 35 of the Model Law. Article 35 deals with the recognition of foreign arbitrary awards, irrespective of the country in which it was made.
Clause 20 contains transitional arrangements. The Model Law will apply to all international agreements, irrespective of whether the agreement is entered into before or after the commencement of the Bill. This clause also proposes that the Chapters of the Bill dealing with international agreements and the recognition and enforcement of foreign arbitrary awards apply to every award whether made prior to, or after, the commencement of those Chapters. The Bill would not apply to the proceedings for the enforcement of awards under the Recognition and Enforcement of Foreign Arbitrary Awards Act, 1977 (Act No. 40 of 1977) or for the enforcement, setting aside or remittance of an award under the Arbitration Act, 1965 (Act 42 of 1965).
Clause 21 sets out the existing legislation which is to be repealed or amended.
In conclusion, the aim of the Bill is to introduce a legislative framework that can be used by businesses to resolve their international commercial disputes and in terms of which parties could obtain arbitrary awards that are legally enforceable. It is envisaged that the Bill will contribute to increased economic growth and investment.
The Chairperson asked what the danger was of a foreign company entering into a foreign agreement with a South African party, and that arbitration agreement was perhaps related to a contract where bribery was involved or other serious malpractices were suspected.
Prof Butler responded that in the first place, the South African party could say in the circumstances that they do not want to arbitrate. The South African party would then be able to go to a South African court and say why the matter should not be referred to arbitration. The court had a very limited discretion not to enforce the agreement. However, at the end of the process the award could be enforced in this country only with the sanction of the South African court, and one of the defences available both under the New York Convention and under the Model Law itself, was the so-called "public defence". Therefore, South African courts could say it was not in the public interest to enforce this award. For example, say an arbitration tribunal acting in the United States imposed a triple damages award on a South African party, three times the amount of damages actually approved, and they tried to enforce that award to South Africa. The South African court could say this award was contrary to South African public policy, because the amount awarded was out of the proportion to the loss actually suffered. So, in short, there was a safeguard to prevent abuse of process, and international arbitration institutions were increasingly aware in the current times for the need for arbitrators to act ethically and be aware that agreements could have hidden motives which have to be taken into account in the arbitration
Mr J Mthethwa (ANC, KwaZulu-Natal) asked what the interaction between the proposed new legislation and the existing Act of 1965 was.
Prof Butler responded that currently the 1965 Act applied to any arbitration that sat in South Africa, whether the arbitration was between two domestic South African parties or between an international party and a South African party, or two international parties. The idea was that this Bill would move international arbitration into a separate compartment which would be subject to a new Bill. Domestic arbitrations would still continue to be subject to the 1965 Act. There was a draft Bill in existence that had been drafted by the Law Commission to have new legislation for domestic arbitration. However, that Bill had one or two controversial aspects and it would be at the discretion of the Department of Justice when that Bill would be brought to Cabinet for approval, and then brought to Parliament.
The Chairperson asked why the process started at the arbitration level, because his understanding was that the process should start at mediation. Who were the arbitrators, how were they appointed, and what kind of expertise should they have? He asked why the international arbitration was regulated by the New York Convention. What was the role of multinational companies in terms of imposing their power when entering into agreements with South African companies -- how did international arbitration affect such agreements?
Prof Butler said that in dealing with the Chairperson’s questions, it was important to first look at the origins of the Model Law -- why it was a Model Law and not a Convention. The origin of the Model Law was in the early 1980s, and came from the Asian African Consultative Council (AACC). The AACC proposed that the ambit or sphere of application of the New York Convention and the enforcement of international arbitrary awards needed to be extended so that there was greater uniformity of law applying to international arbitration in the world. After discussions, in which the Asian and African parties were prominently involved, it was decided that the way to go was rather a Model Law. As he had explained earlier, a Model Law could be adapted to local circumstances, whereas a convention was more difficult, so that was certainly one consideration.
Regarding the issue of going straight to arbitration with a commercial agreement, Prof Butler said if he was drafting the clause, he would ask or insist on a mediation provision to be put in first. It made commercial sense to first settle the agreement by mediation, and the Law Commission at the moment had a project committee that was actively considering proposing legislation which would promote the use of mediation in South Africa, which would then encourage its use in a situation like this.
As far as the appointment of arbitrators was concerned, one of the main advantages of arbitration was perceived to be that the parties could appoint their own arbitrators -- people they had confidence in. In an international arbitration involving a substantial amount of money, there would typically be a tribunal of three arbitrators, and what could happen was that the parties were from different countries. Each party would propose one of their nationals as their own arbitrator. That person must still be independent and impartial, and that duty was owed to both parties. However, if one was a South African business party and involved in an international dispute with a party from another country, they would knows that a South African arbitrator understood their culture, the SA business environment and SA’s laws. The Chairperson of the tribunal should ideally be neutral and not be of the nationality of either party unless the parties agreed to a departure from that.
Where the parties could not agree on the composition of the tribunal -- if they had agreed to arbitrate on the set of rules like those of the International Chamber of Commerce -- then the International Chamber of Commerce would appoint the tribunal. The European-based arbitration institutions were under increasing competition from institutions based in Asia and the Middle East, and this was something the Department of Justice needed to do in Africa to promote their own institutions here. In any event, there was a growing recognition that if the arbitration involved an African party, there should be an African arbitrator on that tribunal. The days of having three western arbitrators in an arbitration involving an Asian party and an African party were treated as unacceptable.
Prof Butler referred to the concerns about multinational corporations, and said a distinction needed to be drawn between commercial arbitration and investment arbitration. This legislation was concerned about commercial arbitration, which typically deals with contractual disputes between the parties. With investment arbitration, on the other hand, the dispute was typically between the host state where the investment had taken place and the foreign investor. Over the last 10 to 12 years, the South African government had altered its position on investment arbitration and the protection of investment legislation of 2015, which provided that if there was a dispute regarding an alleged breach of international treaty rights by the South African government, then the investor must take the South African government to the South African courts.
Ms T Wana (ANC, Eastern Cape) asked what the results were of sentencing a particular party in terms of the Model Law, because it sounded as if there was a slight gap in that legislation.
Prof Butler said that in the first place, the tribunal trying to resolve the dispute would take into account Model Law article 2(a) in schedule 1, which stated that the law must be applied in a way that would promote uniformity in its application and the observance of good faith. This was becoming an increasing factor in arbitration for reasons which had been mentioned above, that there should be a balance of power between the parties and the need for the parties to conduct themselves in good faith in the arbitration. Modern rules were increasingly enabling the arbitrator to impose penalties on parties which did not conduct themselves in good faith in the arbitration. This was in line with the judgments of the constitutional court, that the arbitrator must conduct the arbitration fairly. Therefore, fairness of the conduct of the arbitrator was of absolutely importance. Article 18 of the Model Law also stated that the parties must be treated equally by the arbitrary tribunal, so the fact that one party had lots of money or power did not justify getting any form of preferential treatment from the tribunal, and each party must be given a reasonable opportunity to present its case. If the procedure followed during the arbitration was unfair or if the tribunal exceeded its jurisdiction, then the courts could interfere, either by setting aside the award or refusing to enforce it.
The Chairperson requested Mr J Londt (DA, Western Cape) to make his inputs on how Parliament was expected to conduct oversight with this piece of legislation.
Mr Londt said that this was a Bill which did not require much government intervention. It was just setting up the framework so that the international arbitrations could take place in South Africa. There was a desire from other African countries to try to become arbitration centres, countries like Senegal, Kenya, Mauritius, etc. However, this international arbitration could be organised by the arbitration sector and they could come to governments for assistance in terms of visas and so on. Therefore, there was no expenditure from the government because it was just giving the framework to allow the arbitrations to take place. That was what the arbitrators were pushing for -- to promote South Africa as a destination for international arbitration.
The Chairperson said the Committee should close this issue on the note that public hearings would take place on the matter of international arbitration. The process of concluding this Bill was aimed for 15 November 2017, and passing it before Parliament rose by the end of November.
Mr M Mohapi (ANC, Free State) said that given the fact that they were operating as a cluster, he would like to caution that when they had public hearings, their technocrats should sit together and that they should advertise the public hearing as soon as possible.
Mr Londt said this Bill would not create much interest among the public, although they should make it available to the public. The arbitration sector had been involved and there were some different opinions, but they should get Bill passed and start operating with international arbitration. There would not be a big public controversy in the National Assembly, because the one mistake that had been picked up had been corrected.
The Chairperson thanked the delegation from DOJ&CD for the presentation of the Bill and the responses.
Reports on suspension of magistrates
Mr P Hole
Mr Gurshwyn Dixon, Committee Secretary said that on 18 October 2017, the Committee had received a briefing from the Magistrates Commission that Mr Hole had been on suspension since December 2016, and was not receiving any salary at the moment. The Committee had been asked to confirm that suspension, and it had done so. The report had been referred to the House.
Ms B Engelbrecht (DA, Gauteng) moved the adoption of the report.
Mr Mthethwa seconded the motion.
The Committee adopted the report without amendments.
Ms X Stuurman and Ms V Gqiba
The Committee considered the reports on the suspension from office of magistrates Ms X B Stuurman and Ms VT Gqiba.
Mr Dixon said that this report had also been presented on 18 October 2017. The Minister had suspended the magistrates on 18 August 2017. The suspension included the withdrawal of salaries.
Mr Mthethwa moved the adoption of the report.
Mr D Monakedi (ANC, Limpopo) seconded the motion.
The Committee adopted the report without amendments.
Mr L Zantsi
The Committee considered the report informing the NCOP of the death of magistrate Mr L Zantsi.
Mr Dixon said this report was still on the referrals that had been sent to the NCOP, and this was just to report to the House that Mr Zantsi had passed on in office. The Magistrates Commission could therefore not conclude the case against Mr Zantsi.
Mr Mohapi asked whether this was the first time that a magistrate had passed on while a case was still pending.
Mr Dixon said that for the Committee, it was the first time it had confronted a situation where a magistrate passed on while a case was still pending.
Mr Mthethwa proposed adoption of the report.
Mr Monakedi seconded the adoption of the report.
The Committee adopted the report without amendments.
Adoption of minutes
Mr Mthethwa moved the adoption of the minutes of 18 October. Mr Mohapi seconded the motion.
The minutes were adopted without amendments.
Ms Wana moved for the adoption of the minutes of 25 October. Mr Monakedi seconded the motion.
The Committee adopted the minutes without amendments.
The meeting was adjourned.
- Research Unit: International Arbitration Bill [B10B-2017]
- Research Unit: International Arbitration Bill [B10-2017]
- Department of Justice and Constitutional Development: International Arbitration Bill [B10B-2017] presentation
- International Arbitration Bill [B10B-2017]
- International Arbitration Bill [B10A-2017]
- Committee Report on the Suspension from Office of Magistrate of Ms X B Stuurman, an Additional Magistrate at East London
- Committee Report on the suspension from office of Mr P S Hole, Regional Magistrate at Kimberley
- Committee Report on the suspension from Office of Magistrate of Ms V T Gqiba, the Chief Magistrate at East London
- Committee Report on the Provisional Suspension from Office of Magistrate L Zantsi
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