The UNCITRAL Model Law on International Commercial Arbitration as basis for International and Domestic Arbitration in South Africa DEBRA VENTER 20254199 Mini dissertation submitted in partial fulfilment of the requirements for the degree Magister Legum in Import and Export Law at the Potchefstroom Campus of the North-West University Study Supervisor: Prof. S.P.L.R. de la Harpe November 2010 TABLE OF CONTENTS English extract ……………………………………………………………...vi Afrikaanse opsomming .………….……….……………………………..viii List of abbreviations …..…………………………………………………..xi Keywords …..……………………………………………………………….xii CHAPTER 1 INTRODUCTION …..…………………………………………1 1.1 Arbitration: an everyday scenario ………………………………1 1.2 Problem statement and research question ……………………3 1.3 Australia as an example …………………………………………..6 1.4 International arbitration versus domestic arbitration …..…..7 1.5 Outline of the study ………………………………………………..7 CHAPTER 2 ARBITRATION: AN OVERVIEW …………………………...9 2.1 Definition, objective and methods of arbitration …………….9 2.2 The arbitration agreement, applicable law and seat arbitration ………………………………………………………………12 2.3 Domestic and international commercial arbitration ……….17 2.3.1 Commercial arbitration ……………………………………..17 2.3.2 Domestic arbitration ………………………………………...19 2.3.3 International arbitration ……………………………………..19 2.3.4 The need for uniformity and coordination ………………...22 CHAPTER 3 UNCITRAL AND THE MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION …………………….24 3.1 UNCITRAL ………………………………………………………….25 3.1.1 Origin, mandate and composition …………………………25 i TABLE OF CONTENTS CONTINUES 3.1.2 Objective ……………………………………………………..26 3.1.3 Trade law texts and instruments …………………………..28 3.1.4 Settlement of disputes in accordance with UNCITRAL …29 3.2 Definition of “model law” ……………………………………….30 3.3 Model Law on International Commercial Arbitration: objective and principles ……………………………………………..31 CHAPTER 4 AUSTRALIAN LEGAL POSITION ………………………..34 4.1 Position before 2010 ……………………………………………..34 4.1.1 Australia’s arbitration acts ………………………………….34 4.1.2 The UNCITRAL Model Law and opt-out/opt-in provisions …………………………………………………………..35 4.2 Reform of arbitration legislation ………………………………36 4.2.1 Proposed reform of the IAA ………………………………..36 4.2.2 IAA: present position ……………………………………….39 4.2.3 Proposed reform of the CAAs ……………………………..40 4.2.4 CAAs: present position …………………………………….41 4.3 The UNCITRAL Model Law as basis for both international and domestic arbitration …………………………………………….42 4.3.1 Reasons why domestic arbitration should or should not be based on the UNCITRAL Model Law …………………………....42 4.3.2 Reasons why international arbitration should or should not be based on the UNCITRAL Model Law ………………………..43 4.3.3 Reasons why there should or should not be two arbitration acts when both international and domestic arbitration are based on the UNCITRAL Model Law ……………………………………44 4.4 Conclusion ………………………………………………………...45 ii TABLE OF CONTENTS CONTINUES CHAPTER 5 SOUTH AFRICAN LEGAL POSITION …………………...47 5.1 Legislation and common law …………………………………..48 5.2 South African Law Commission Report ……………………...50 5.2.1 The SALC’s 1998 Report: a brief history ………………...50 5.2.2 Proposed alterations and additions ……………………….52 5.2.3 The proposed Draft International Arbitration Bill ………...55 5.2.4 South Africa’s response to the UNCITRAL Model Law …56 5.3 The UNCITRAL Model Law as basis for both international and domestic arbitration …………………………………………….58 5.3.1 SALC’s reasons for not adopting the UNCITRAL Model Law for domestic arbitrations …………………………………….58 5.3.2 SALC’s reasons for not adopting the UNCITRAL Model Law for both domestic and international arbitration ……………59 5.3.3 Reasons why domestic arbitration should or should not be based on the UNCITRAL Model Law ……………………………60 5.3.4 Reasons why international arbitration should or should not be based on the UNCITRAL Model Law ………………………..61 5.3.5 Reasons why South Africa should have two separate arbitration acts ……………………………………………………..61 5.4 The SALC 2001 Report …………………………………………..62 5.5 Conclusion ………………………………………………………...63 CHAPTER 6 COMPARISON ………………………………………………65 6.1 Primary provisions of the UNCITRAL Model Law …………..66 6.1.1 Clarity and certainty ………………………………………...66 6.1.2 Limited court intervention …………………………………..67 iii TABLE OF CONTENTS CONTINUES 6.1.3 Interim measures ……………………………………………67 6.1.4 Arbitrators and arbitral tribunal …………………………….67 6.1.5 The arbitration agreement and referral to arbitration ……68 6.1.6 Party autonomy ……………………………………………..68 6.1.7 Issue, recognition and enforcement of awards …………..68 6.2 UNCITRAL Model Law versus Australian international position …………………………………………………………………69 6.2.1 Previous position: 1974 IAA ……………………………….69 6.2.2 Present position: 2009 IAA ………………………………...69 6.3 UNCITRAL Model Law versus Australian domestic Position …………………………………………………………………71 6.3.1 Previous position: 1984 CAAs ……………………………..71 6.3.2 Present position: 2010 CAA ……………………………….72 6.4 UNCITRAL Model Law versus South African international position …………………………………………………………………74 6.4.1 Present position ……………………………………………..74 6.4.2 Possible future position: Draft International Arbitration Bill ……………………………………………………………………74 6.5 UNCITRAL Model Law versus South African domestic position …………………………………………………………………75 6.5.1 Present position: SA Arbitration Act ………………………75 6.5.2 Possible future position …………………………………….76 6.6 Conclusion regarding Australia ……………………………….77 6.6.1 International regime ………………………………………...77 6.6.2 Domestic regime …………………………………………….77 iv TABLE OF CONTENTS CONTINUES 6.7 Conclusion regarding South Africa …………………………...78 6.7.1 International regime ………………………………………...78 6.7.2 Domestic regime …………………………………………….78 CHAPTER 7 FINAL CONCLUSIONS …………………………………….79 7.1 The progressive growth of international trade ……………...79 7.2 Expectations of good international commercial arbitration legislation ………………………………………………………………80 7.3 South Africa as favourable international arbitration venue ……………………………………………………………………81 7.4 Lessons to be learned from Australia ………………………..81 7.5 The possibility of reform and adoption of new legislation in South Africa: the path which South Africa should follow …….82 7.6 End conclusions ………………………………………………….84 APPENDIX 1 UNCITRAL MEMBER STATES …………………………..86 BIBLIOGRAPHY ……………………………………………………………88 v English extract Commercial arbitration is growing in importance in the modern world. People often use arbitration to ensure adjudication by an expert in the field and although arbitration may not always be quicker, its importance continues to grow especially in international commercial disputes.1 Effective arbitration procedures will have positive consequences for the economical and political relationships between countries.2 The Arbitration Act 42 of 1965 might have sufficed in the past, but as international commercial arbitration is ever increasing and changing, this act has become out-dated. It does not effectively facilitate international commercial arbitration. The Act was primarily designed with domestic commercial arbitration in mind and therefore it is of limited assistance in the international commercial arbitration sphere. The United Nations Commission on International Trade Law3 has developed the Model Law on International Commercial Arbitration.4 This Model Law or variations thereof can be adopted by a country to regulate international commercial arbitration.5 Many countries choose to adopt the Model Law. The reasons vary but some are that the country’s own arbitration laws were out-dated and needed replacement. The Model Law has proved to be effective and it has become a benchmark for good arbitration legislation.6 Some countries have even adopted the Model Law for use in domestic commercial arbitration disputes. The South African Law Commission7 published a report in 19988 dealing with the possible application of the Model Law on international 1 Robine 1996 Int’l Bus. L.J 145-146; Griffith and Mitchell 2002 Melbourne Journal of International Law 184. 2 Slate et al 2004 Cardozo Journal 82. 3 Hereafter UNCITRAL. 4 Hereafter the Model Law. 5 Herrmann 1998 Uniform Law Review 485. 6 Model Law Explanatory Note by the UNCITRAL Secretariat. 7 Hereafter the Commission. vi commercial arbitration in South Africa. It drafted a Draft Bill on International Arbitration (not as of yet promulgated) based on the Model Law.9 One of the points of discussion in the report of the Commission was whether the Model Law should also be made applicable to domestic commercial arbitration in South Africa. The conclusion was that domestic and international arbitration should be dealt with separately and that the present Act regulating domestic arbitration should be amended but not replaced by the Model Law. This implies two arbitration regimes: the International Arbitration Act (dealing only with international commercial arbitration); and the Arbitration Act (dealing only with domestic commercial arbitration).10 After the Commission’s report had been studied and South Africa’s legal position had been compared with Australia’s legal position,11 it is conlcuded that Australia is a good example to follow in regard to arbitration practices. It is, however, important to keep South Africa’s own background in mind. A good point made by Australia, is the fact that international commercial arbitration legislation and domestic commercial arbitration legislation, should be kept separate. This will bring about effectiveness and clarity for the users of the said legislation. Furthermore, as end conclusion, the Commission’s view is not favoured in regard to the fact that South Africa’s domestic arbitration legislation should not be based on the UNCITRAL Model Law. It would be a good idea to follow suit with Australia and base both South Africa’s international and domestic commercial arbitration legislation on the UNCITRAL Model Law. 8 South African Law Commission Project 94 Arbitration: An International Arbitration Act for South Africa Report July 1998. 9 SALC Report 1998 annexure F. 10 The issue which will be dealt with in this study is whether South Africa should base both its domestic and international commercial arbitration legislation on the Model Law or whether the Model Law should just be made applicable to international commercial arbitration. 11 The present legal position in South Africa will be discussed and compared with the legal position in Australia, as Australia is reforming both their International Arbitration Act 136 of 1974 and their Uniform Acts (each state and territory of Australia have different legislation applicable on domestic commercial arbitration). vii Afrikaanse opsomming Die UNCITRAL Model Wet op Internasionale Kommersiële Arbitrasie as basis vir Internasionale en Plaaslike Arbitrasie in Suid-Afrika Kommersiële arbitrasie is een van die voorste alternatiewe dispuut resolusie metodes ter wêreld en dit is ook ‘n metode wat nog ontwikkel, veral in die moderne wêreld van internasionale handel.12 Arbitrasie word al hoe meer deur partye verkies bo litigasie aangesien dit ‘n metode is waardeur ‘n dispuut vinnig, goedkoper en meer effektief besleg kan word.13 Ook in Suid-Afrika word arbitrasie al hoe meer verkies deur partye betrokke in ‘n kommersiële dispuut.14 Effektiewe arbitrasie prosedures is ‘n groot voordeel vir die ekonomiese en politieke verhoudings tussen lande en dit dra dus ook by tot die algehele globale verhoudings tussen hierdie State.15 Die huidige Suid-Afrikaanse Wet op Arbitrasie 42 van 1965 word nie meer beskou as effektief en doeltreffend nie aangesien dit tot op hede nog nie aangepas is om sodoende tred the hou met die hedendaagse kommersiële arbitrasie tendense nie. Hierdie Wet dek net plaaslike kommersiële arbitrasie en bevat geen verwysing na internasionale kommersiële arbitrasie nie. Dus is daar ‘n leemte in die Suid Afrikaanse arbitrasie wetgewing wat betref laasgenoemde. Die “Model Law on International Commercial Arbitration”,16 wat bekendgestel is deur UNCITRAL,17 word gebruik deur baie lande as 12 Robine 1996 Int’l Bus. L.J 145-146; Griffith and Mitchell 2002 Melbourne Journal of International Law 184. 13 Nie alle arbitrasie is egter vinnig en goedkoop nie en dus word die eenvoudigheid van arbitrasie soms oorbeklemtoon. 14 Berger 1994 SA Merc LJ 251. 15 Slate et al 2004 Cardozo Journal 82. 16 UNCITRAL Model Law on International Commercial Arbitration (hierna “UNCITRAL Model Law” of Model Wet) 17 United Nations Commission on International Trade Law. viii bron vir hul arbitrasie wetgewing en prosedures.18 Hierdie Model Wet (of variasies daarvan) kan deur lande oorgeneem word om sodoende hul internasional kommersiële arbitrasie te reguleer. Alhoewel die Model Wet meestal in die geval van internasionale kommersiële arbitrasie gebruik word, is daar ook lande wat dit oorgeneem en geïnkorporeer het in hul plaaslike kommersiële arbitrasie wetgewing.19 Die Suid-Afrikaanse Regskommissie het in 1998 en 2001 verslae gepubliseer wat handel oor die probleem rakende Suid-Afrika se verouderde arbitrasie wetgewing wat nie internasionale kommersiële arbitrasie dek nie.20 Hierdie verslae konsentreer veral op die moontlikheid om Suid-Afrika se internasionale kommersiële arbitrasie te baseer op UNCITRAL se Model Wet. Die Regskommissie het ook nog verder gegaan en ‘n Konsep Wet op Internasionale Kommersiële Arbitrasie21 voorgestel en gepubliseer. Hierdie Wet het egter tot op hede nog nie inwerking getree nie. Een van die besprekingspunte waaraan geraak word in die Regskommissie se verslae is of Suid-Afrika se plaaslike kommersiële arbitrasie wetgewing ook gebaseer moet word op UNCITRAL se Model Wet. Die bevinding was egter dat Suid-Afrika se wetgewing rakende plaaslike en internasionale kommersiële arbitrasie apart gehou moet word en dat die internasionale gedeelte alleenlik op die Model Wet gebaseer moet word. Dus word daar voorgestel dat Suid-Afrika ‘n internasionale arbitrasie wet (wat net handel met internasionale kommersiële arbitrasie) aan die een kant moet hê en die huidige, maar tog ‘n opgegradeerde weergawe van die Wet op Arbitrasie (wat net handel met plaaslike kommersiële arbitrasie) aan die ander kant.22 18 Herrmann 1998 Uniform Law Review 485. 19 Daar is verskeie redes waarom sommige lande verkies om dit te inkorporeer in hul plaaslike arbitrasie, soos byvoorbeeld, die feit dat hul eie plaaslike arbitrasie wetgewing verouderd geword het. 20 Die verslae is getiteld: “South African Law Commission Project 94 Arbitration: An International Arbitration Act for South Africa Report July 1998” en “South African Law Commission Project 94 Domestic Arbitration May 2001”. 21 SALC Report 1998 annexure F. 22 Die vraag wat dus in hierdie studie behandel en beantwoord gaan word, is of Suid-Afrika se internasionale en plaaslike kommersiële arbitrasie wetgewing ix