South Africa: Arbitration In Africa

Last Updated: 28 March 2007

Article by Gabriel Meyer and Matthew Colman

Investment into Africa is often made against a background of perceived (if not actual) political risk. This includes the perception that the domestic courts in Africa lack the commercial focus, propriety and efficiency that investors are ordinarily used to; fears that decisions of African courts may not be enforceable in other jurisdictions; and the perception that African host states sometimes act in an unpredictable and/or arbitrary fashion (consider for example Algeria’s recent reversal of its 2005 hydrocarbons law, and Zimbabwe’s expropriation of its agricultural industry – a matter which is currently before the World Bank arbitration forum, ICSID).

Many African governments have made efforts to alleviate these concerns by entering into bilateral investment treaties, and by adopting arbitration legislation, which respects party autonomy in accordance with the UNICITRAL Model Law on International Commercial Arbitration (the Model Law).

The procedural law governing an arbitration (other than delocalised arbitration) will be that of the state where the arbitration has its legal place or "seat" and the mandatory laws of procedure of any other state in which the parties choose to hold hearings, even though this latter state is not the seat of the arbitration. Therefore if the parties choose the seat of the arbitration to be in an African state or hold hearings in an African state they should be familiar with the applicable procedural laws of arbitration; in particular they should be aware of the degree (if any) to which local courts will be able to intervene in the arbitration process.

Those states that have adopted the Model Law generally provide a regime whereby interference in the arbitration by courts is limited and in line with modern commercial arbitration practices. Nevertheless investors should always check with local counsel the degree to which the Model Law is subject to other domestic laws of the host state which may present a possibility for court intervention.

Arbitration and Arbitration Venues Considered: Egypt, Nigeria and South Africa

Three of the largest economies in Africa - South Africa, Nigeria and Egypt, have each taken different approaches with varying degrees of success to introducing and applying modern arbitration legislation. Local arbitration legislation in both Nigeria and South Africa gives the courts wide powers to interfere in arbitration proceedings on grounds beyond the limited grounds stipulated in the Model Law, which effectively discourages arbitration.

Egyptian arbitration law recognises international arbitration awards which can only be challenged in court by means of a specific annulment action based on a limited number of grounds (all relating to procedure or due process) in accordance with the Model Law. The Egyptian judiciary has also proved to be cooperative and supportive of arbitration proceedings in the past.

Although Nigeria has adopted the Model Law, the local courts may on the application of a party to an arbitration agreement set aside the award if the arbitrator has "misconducted" himself. The local courts have in the past interfered in arbitration proceedings by interpreting this ground as being wider than the grounds specified in the Model Law. Arbitration proceedings in Nigeria can also be delayed by a party challenging an arbitration tribunal’s jurisdiction in court during which time the arbitration proceedings may be suspended (rather than the arbitration continuing while the court proceedings are pending).

South Africa has not adopted the Model Law and its arbitration legislation dates back to 1965. The legislation has three particular areas of concern. First, the courts may at any time on application of a party to an arbitration agreement on "good cause" set aside an arbitration agreement; "good cause" has been interpreted widely to include disputes that primarily relate to questions of law and disputes where it would be inconvenient or unnecessarily expensive for a dispute to be resolved in accordance with the relevant arbitration agreement. Second, the courts "may" stay court proceedings if there is "no sufficient reason" for the matter not to be referred to arbitration (cf Art 8 of the Model Law). Third, there are provisions for the courts to rule on any question of law by way of a stated case procedure. Nevertheless an increasing number of South Africans are resorting to arbitration for the resolution of their commercial disputes and the SCA has recently shown a renewed deference to arbitration proceedings in upholding an ICC award in the recent decision of Telcordia Technologies v Telkom (SCA Case number 26/05).

As in the rest of the world, arbitration in Africa can be held ad hoc or under an institutional arbitration body. The main recognised institutional arbitration centres in Africa are the Cairo Regional Centre for International Commercial Arbitration (CRCICA), the Lagos Regional Centre for International Commercial Arbitration (LRCICA) and the Arbitration Foundation of South Africa (AFSA), all of which are recognised in their respective regions of influence. Although the CRCICA, and the LRCICA have an international personality (like ICSID), tribunals sitting under the auspices of these institutions are (unlike ICSID) still subject to the procedural laws of the state in which the seat of the arbitration is located. The arbitration rules for the CRCICA and the LRCICA are modified versions of the UNCITRAL Arbitration rules, whereas the arbitration rules of AFSA draw inspiration from a number of sources and are also subject to the constraints of the local arbitration legislation.

Arbitration awards are enforced under the New York Convention, which has been ratified by a majority of African states, including Egypt, Nigeria and South Africa. However, a significant number have not ratified the Convention to date. Of those African states that have ratified the New York Convention many have made the permitted reservations as to reciprocity and commercial relationships. The reciprocity issue means it is essential to consider enforcement issues if choosing the seat in Africa. Egypt and South Africa have no reservations; Nigeria has reservations as to both reciprocity and commercial relationships.

Considerable resources may have to be expended before the execution of the award is possible. It is therefore always advisable to consider the procedural law of the enforcement country prior to enforcing an award.

Minimising the Political Risk: Bilateral Investment Treaties

Investors can minimise the political risk of investing in Africa by ensuring that their investments are covered by bilateral investment treaties. Bilateral investment treaties are treaties signed between states which provide that nationals of each state, when investing in the other state, will be accorded rights such as fair and equitable treatment, no expropriation without compensation, and the right to submit disputes with the host state to binding international arbitration (such rights are often well beyond those contained in the host state’s domestic law). Breach of a bilateral investment treaty entitles damages. Bilateral investment treaties involving African states usually provide for the arbitration to be at the ICSID pursuant to the Washington Convention or the Additional Facility Rules, or ad hoc arbitration pursuant to the UNCITRAL Arbitration Rules. Arbitration at the ICSID pursuant to the Washington Convention is particularly appealing because such arbitrations are not subject to the procedural laws of any state and the awards of such tribunals are enforceable in the 140 plus states that have ratified the Washington Convention as if they were a final judgment of the courts of that state, subject to the state’s laws of sovereign immunity. For those nationals whose states have not ratified the Washington Convention (such as South Africa) arbitration under the Washington Convention is not possible. Arbitration in such cases will usually be ICSID arbitration pursuant to the Additional Facility Rules or ad hoc UNCITRAL Arbitration (in such instances enforcement is through the New York Convention).

Foreign investors are increasingly channelling their investments through companies established in jurisdictions that have ratified a bilateral investment treaty with the host state in which the investment is made, combining such planning with their tax structuring. Some African governments are waking up to their obligations under such treaties: Ghana has recently committed to reviewing its bilateral investment treaties.

A Possible Compromise

Many non African investors in Africa are unwilling to submit to arbitration in Africa with the seat of the arbitration in Africa; the African counter-parties are generally reluctant to incur the expense associated with international arbitration institutions, which is often perceived to require travel to the northern hemisphere. A compromise commonly negotiated by the authors is to agree to arbitration under the auspices of one of the international institutions with the seat of the arbitration in the northern hemisphere but to expressly provide that the hearings for the arbitration will be held in the relevant African host state (provided that the mandatory laws of procedure of such host state do not interfere in arbitration proceedings).

Authors: Gabriel Meyer and Matthew Colman of Africa Legal, the Africa specialised division of Deneys Reitz in Johannesburg, South Africa.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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