30 May 2018 by Dispute Resolution Alert

Do not confuse the 1965 Arbitration Act with the 2017 International Arbitration Act

Let there be no confusion. The Arbitration Act of 1965 (1965 Act) is still alive and well.  The International Arbitration Act of 2017 (2017 Act) did not repeal the 1965 Act.

The 1965 Act regulates all domestic arbitrations that do not fall under the ambit of the 2017 Act which has the object to resolve international commercial disputes.  The 2017 Act applies when the seat of arbitration is in South Africa. Be aware that the mere fact that parties to an international commercial agreement elected South Africa to be the seat of arbitration does not mean that the 1965 Act then becomes applicable. Johannesburg may be the seat of arbitration, but the 2017 Act will apply if the arbitration is international.

When is an arbitration agreement international?

According to the United Nations Commission on International Trade Law (UNCITRAL) Model Law, Chapter 1(3), “an arbitration agreement is international if:

(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i)  the place of arbitration if determined in, or pursuant to, the arbitration agreement; 

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.”

An important development with the promulgation of the 2017 Act is that the UNCITRAL Model Law on International Commercial Arbitration will apply to international arbitration agreements. UNCITRAL is an internationally accepted model, which will in future assist to persuade an international party to a commercial agreement entered into with a South African party, to consent to an arbitration agreement or clause, which is governed by the 2017 Act.

A South African party to an international commercial agreement may now be able to persuade an international corporate based, for example, in China to accept the jurisdiction of the 2017 Act because the China company may find comfort in the fact that the parties to the international arbitration agreement may agree to the application of, for instance, the ICC rules and for that arbitral institution to administer the arbitration. The parties in an international commercial agreement may also agree to appoint the Arbitration Foundation of South Africa (AFSA), to be such an institution. To ensure that the 2017 Act applies, the arbitration agreement/clause must stipulate South Africa as the seat of arbitration. Such choice will automatically result in the law of South Africa being the law governing the arbitration agreement/clause. However, do not confuse the law governing the arbitration agreement with the law chosen by the parties to be the substantive law applicable to the commercial agreement. South African law may apply to govern the arbitration agreement/clause and to give effect thereto, but Singapore law may have been chosen as the substantive law for an arbitrator to follow regarding the commercial agreement and its terms.

Do not discard the arbitration agreement/clause used in South African-based commercial agreements as the provisions in such clauses are still relevant and applicable and it should still be used in respect of commercial arbitrations without any change where the 1965 Act is applicable.

Corporates will have to draft new arbitration agreements/clauses for incorporation in international commercial agreements. Such arbitration agreements/clauses will have to refer to the juridical seat of arbitration as South Africa. 

It must be remembered that the 2017 Act only deals with a possible arbitration in future between parties in the event of a dispute and has nothing to do with the terms of the commercial agreement which embodies the intention of the parties to do business.

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