SOUTH AFRICA Trends and Developments Contributed by: Jonathan Ripley-Evans, Fiorella Noriega Del Valle, Kyle Melville and SooBin Park, Herbert Smith Freehills Kramer
AFSA” reflects a strategic investment in the next gen - eration of arbitration practitioners. Existing Challenges in South Africa Despite these positive signals, in light of the fact that international arbitration remains in its infancy in South Africa, various areas of uncertainty remain which will only become clearer as jurisprudence on this topic One area of uncertainty relates to the arbitrability of shareholder oppression claims under Section 163 of the Companies Act. This provision gives courts broad powers to grant relief in cases of oppressive or unfair - ly prejudicial conduct, typically in favour of minority shareholders. However, it remains unclear whether arbitrators are empowered to hear such disputes, or whether such claims must be brought exclusively before the courts. develops through the common law. Shareholder oppression claims The decision in Peel v Harmon J&C Engineering (Pty) Ltd and Others 2013 (2) SA 331 (a decision issued in the context of the Arbitration Act of 1965) confirmed that courts retain jurisdiction over Section 163 claims, even where an arbitration agreement exists. This has led to a proliferation of cases in which parties seek to bypass arbitration by framing their disputes as oppression claims under Section 163. While the IAA now mandates that courts must stay proceedings in favour of arbitration where an international arbitration agreement exists, it remains to be seen whether this obligation will extend to shareholder disputes of this nature. Until a court revisits or clarifies the principles established in Peel in the context of the IAA, this area will remain a source of legal uncertainty. Investment disputes Despite the South African Law Reform Commission’s recommendation in 1998, the South African govern - ment decided not to become a signatory to the Con - vention on the Settlement of Investment Disputes between States and Nationals of Other States. In 2009, South Africa terminated (or did not renew) nine of its Bilateral Investment Treaties. The country’s atti - tude towards traditional investor protection became very clear at that point in time.
As a compromise, the South African government promulgated the Protection of Investment Act (PIA), which now regulates the legal relationship between the South African government and foreign investors. The PIA contains certain provisions that are found in newer generation treaties – for instance – specifically carving out a state’s right to regulate in the public interest (Section 12). Most notably, however, the PIA provides for three dispute resolution mechanisms: • mediation between the foreign investor and the government (Section 13 (1)); • traditional court litigation (Section 13 (4)); and • arbitration conducted between the Republic and the home state of the applicable investor (subject to the exhaustion of domestic remedies) (Section 13 (5)). In relation to arbitration, Section 13 (5) of the PIA pro - vides that: “[t]he government may consent to international arbi - tration in respect of investments covered by this Act, subject to the exhaustion of domestic remedies.” Despite the South African government’s reluctance to endorse arbitration as the appropriate dispute resolu - tion regime for investment disputes, the South African courts have been keen to demonstrate their willing - ness to uphold traditional investment protections. In Trustees for the time being of the Burmilla Trust and Another v President of the RSA and Another (Case No 64/2021) [2022] ZASCA 22 (1 March 2022), the SCA confirmed the South African judiciary’s alignment with international investment law jurisprudence. In the con - text of the treaty protection known as denial of justice, the SCA in its minority judgement held as follows. “Therefore, absent an infringement of a fundamental obligation of international law, international tribunals are not there to scrutinise whether court proceedings of member states were free from error or defect. This is even if it were to be shown that their decisions were obviously wrong. Such incorrect application of the law does not permit interference from an international tri - bunal, except if there is illegality or denial of justice by the domestic courts. If this were not to be the standard for international intervention, one can imagine a flurry
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