South Africa is making up for lost time as a competitive international arbitration centre.

For years, the country sat and watched from the side-lines while others, notably Egypt, Kenya, Mauritius, Rwanda and Uganda, put themselves on the map as credible international arbitration centres for civil and commercial disputes.

Now, South Africa has been galvanised into action. 

Where international disputes were once referred to the Arbitration Foundation of Southern Africa (AFSA) at the rate of one or two a year, the numbers have been accelerating rapidly. For the entire nine-year period between 2007 and 2016, only 10 international disputes were referred to AFSA for arbitration, compared to the 18 referrals it received in 2018 alone, with a total quantum in excess of ZAR 640 million.

The number of international arbitration referrals continues to escalate, along with the value of the transactions under dispute: in late 2019, AFSA, which is the most prominent and widely recognised of South Africa’s arbitral institutions, reported 24 new cases with a combined total value of ZAR 3 billion.

This heightened activity had a catalyst – the commencement of the International Arbitration Act 15 of 2017 on 20 December that year.

The change in pace of referrals before and after that milestone clearly demonstrates the positive impact that legislative and regulatory certainty can have. South Africa, having brought its international arbitration legislation into line with other jurisdictions throughout the world, has been able to attract a significant uptake in appetite for international arbitration in a relatively short space of time.

Changes that made all the difference

How and why did the International Arbitration Act make such a difference? Simply put, it gives investors the comfort they need that, in the event of a dispute arising in South Africa, they will have access to a credible, well-established alternative dispute resolution dispensation that meets international standards and is in line with international best practice.

The International Arbitration Act provides this peace of mind because it incorporates the UNCITRAL Model Law on International Commercial Arbitration into South African law. Schedule 1 to the International Arbitration Act is, in effect, a restatement of the UNCITRAL Model Law. 

Previously, foreign arbitral awards were enforced in terms of the Recognition and Enforcement of Foreign Arbitral Awards Act of 1977, domestic legislation that did not cater for the full scope of international arbitrations, but instead only dealt with certain concepts on a piecemeal basis. 

It is not only the law that has been modernised and improved in South Africa. Other changes include the development of AFSA’s International Arbitration Division (including its recent publication of draft rules for international arbitration to incorporate best practice from an international perspective), as well as various improvements to the infrastructure and resources used in international arbitration.

These include the digitisation of South Africa’s courts and the uptake of technologies that facilitate virtual hearings and e-discovery – all of which have been accelerated by the COVID-19 pandemic. The result is increased access both to arbitration proceedings held in South Africa and to South Africa’s courts in instances where parties to arbitration proceedings are required to approach them for assistance in enforcement or for interim relief.

Virtual hearings are next

Taking technology further, South Africa’s arbitral institutions have fast learnt to utilise the developing technology designed for virtual hearings, enabling parties to participate in an arbitration from different geographic locations.

This is important considering that the cases referred to and administered by AFSA are mainly cross-border commercial matters. For the most part, these involve general contractual disputes, engineering and construction disputes, and disputes involving share agreements and/or loan repayments. The key industries concerned are mining, shipping, construction, telecommunications and certain financial sectors.

Recently, there has been a further uptake in international arbitration activity in the construction sector due to the number of construction projects being undertaken in South Africa and on the continent at large. The effects of the COVID-19 pandemic are also starting to become apparent in  this sector, and this will probably lead to an increase  in the number of international arbitrations in this area.

It is possible that the continued effect of COVID-19 will also result in an increase in mining and shipping arbitrations, many of which will take place virtually.

Outlook for South Africa

While international arbitration is still developing as a means of alternative dispute resolution in South Africa, its prevalence is increasing.

Cost is one of the biggest benefits of using South African arbitration institutions to administer international arbitrations where the seat of arbitration is located in South Africa. The cost of legal services, infrastructure and additional arbitration services is generally cheaper in many instances when compared to arbitration institutions and services based in more developed countries. In addition, travel costs are reduced and, in the instance of virtual hearings, negated completely.

All in all, the outlook for South Africa’s efforts to establish itself as an international arbitration centre seems promising – demonstrating the positive effects that can result when the law is attuned to investors’ priorities and private sector capacity is harnessed effectively.

Written By Jane Andropoulos, Tori Herholdt and Tumisang Mongae, partners, and Jonathan Barnes, senior associate, Bowmans