The long-awaited South African international arbitration legislation is now in force.[1] The International Arbitration Act 15 of 2017 (International Arbitration Act) was passed by the National Assembly (on 24 October 2017), by the National Council of Provinces (on 26 November 2017), and assented to by the President (on 19 December 2017). The International Arbitration Act was then published in the Government Gazette on 20 December 2017 and entered into force on that date.[2]

The International Arbitration Act was specifically enacted to transform the international commercial arbitration practice in South Africa. The earlier South African international arbitration regime (governed by the Arbitration Act 42 of 1965, Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977, and Protection of Businesses Act 99 of 1978) was perceived to be outdated and inadequate for the purposes of international commercial arbitration. This discouraged companies from doing business in the country, and from choosing South Africa as place for arbitration.

Summary of the International Arbitration Act

The International Arbitration Act applies to any international commercial dispute that the parties have agreed to submit to arbitration under an arbitration agreement. However, it does not apply to disputes not subject to arbitration under any South African law (e.g. any matrimonial cause or matters incidental to any such cause). The Act also does not apply to any arbitration agreement contrary to the public policy of South Africa.

The International Arbitration Act incorporates the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration of 1985, amended in 2006 (UNCITRAL Model Law) as the foundation for international arbitration in South Africa. This means that the UNCITRAL Model Law now has force of law (i.e. is directly enforceable) in South Africa. The UNCITRAL Model Law is universally recognised as the single most important legislative instrument in international commercial arbitration practice. It has been adopted in over 70 jurisdictions including Southern African Development Countries: Zimbabwe, Zambia, Mauritius, Madagascar, and now South Africa. The UNCITRAL Model Law governs arbitral proceedings and the recognition and enforcement of arbitral awards.

The International Arbitration Act repeals the Recognition and Enforcement of Foreign Arbitral Awards Act; and provides for the recognition and enforcement of foreign arbitral awards (awards made outside South Africa). The International Arbitration Act gives effect to South Africa’s obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention). The New York Convention facilitates the recognition and enforcement of foreign arbitral awards. South Africa ratified the New York Convention in 1976 and domesticated it in 1977 through the Recognition and Enforcement of Foreign Arbitral Awards Act.

The International Arbitration Act further amends the Protection of Businesses Act by deleting reference to the words ‘arbitration award/s’. This means that the Protection of Businesses Act is no longer applicable to the enforcement of foreign arbitration awards. The Protection of Businesses Act governs the enforcement of certain foreign judgments, orders, directions, and letters of request in South Africa; and prohibits the furnishing of information relating to businesses in compliance with foreign orders, directions or letters of request.

The International Arbitration Act also provides for conciliation as a mechanism for settling disputes between private parties. Such conciliation proceedings are regulated in accordance with the UNCITRAL Conciliation Rules. This gives parties the flexibility to use conciliation to resolve their dispute. This is an important feature, as arbitration can be costly as compared to conciliation.

The International Arbitration Act also applies to any international commercial disputes to which public bodies (state departments, institutions exercising public power or performing public function in terms of the Constitution or any legislation) are parties – if the parties have agreed to submit such disputes to international arbitration. That is, the International Arbitration Act can be applied to commercial disputes between state (national, provincial or municipal) departments and international businesses.

Implications for South Africa and cross-border businesses

The entry into force of the International Arbitration Act has many legal and economic implications for South Africa and businesses in and outside South Africa.

South Africa’s legal framework for commercial arbitration is now split into domestic arbitration (governed by the Arbitration Act), international commercial arbitration (regulated by the International Arbitration Act), and investment arbitration (to be governed by the Protection of Investment Act 22 of 2015 once effective). The Protection of Investment Act, once in force, will provide for the resolution of investment (investor-state) disputes by arbitration.

More importantly, the International Arbitration Act applies to any international commercial arbitration agreements entered into before or after the entry into force of the Act (20 December 2017). However, the Act does not apply to arbitral proceedings which commenced before 20 December 2017. The Act also applies to every arbitral award made before or after the date of entry into force. Proceedings that commenced before 20 December 2017 under the Recognition and Enforcement of Foreign Arbitral Awards Act and the Arbitration Act shall continue under those legislations.

Further, the legislation aligns South Africa’s international arbitration regime with the global best practices for the resolution of commercial disputes. The International Arbitration Act improves access to justice for companies doing business in and outside South Africa. This will enhance South Africa’s appeal as a desirable place for doing business and a seat for arbitration in the region and the world. As the country’s ability and readiness to host international arbitrations increases, so can trade and investment activities in South Africa.

The promulgation of the International Arbitration Act sends a positive message to the international business community. International arbitration is increasingly becoming the preferred mechanism (more than adjudication) for settling commercial disputes across the globe. This is because international arbitration is flexible, consent-based and expedient. It also provides businesses with confidence and certainty.

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[1] The adoption of an international arbitration legislation in the country began in 1998 after recommended by the South African Law Commission. See http://salawreform.justice.gov.za/reports/r_prj94_july1998.pdf.

[2] Click here to download: pdf International Arbitration Act No. 15 of 2017 (437 KB)