Each act defines which arbitrations they apply to and will apply by default when those circumstances are satisfied. Over time, the circumstances, parties or the place of performance of the contract can evolve, meaning a contract that was ‘international’ at the time of contracting becomes ‘domestic’ in nature, and vice versa. However, the International Act provides that the test for internationality is applied to the circumstances that existed at the time the arbitration agreement was concluded, not at the time of any future arbitration.

Parties should therefore be alert to the default application of either the International Act or the Domestic Act when negotiating arbitration agreements, taking advice on the implications and consequences for the transaction and any potential future arbitration.

The differences between the acts

The Domestic Act predates the International Act by over 50 years. Therefore, not unexpectedly, the different acts apply for different procedures and priorities for arbitrations conducted under them. This can have significant consequences for the conduct and process of an arbitration and the enforceability of a final arbitral award.

The International Act incorporates (with some modifications) the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985 (Model Law). The Model Law represents a global legal framework that over 100 legal jurisdictions, including prominent international arbitral hubs such as Singapore, Hong Kong, Kenya and Mauritius, have incorporated into their domestic law. It is designed to achieve greater worldwide standardisation and harmonisation of international arbitration legislation, assisting states to reform and modernise statutory frameworks to accommodate the features of international commercial arbitration.

In South Africa, there are notable differences between the Domestic Act and the Model Law-derived International Act. These differences have significant consequences for the parties and the conduct of the arbitration process, including the:

• grounds and time limits for courts to set aside an arbitral award;
• circumstances in which court intervention is permitted;
• separability of the arbitration agreement (which determines whether it can survive a declaration of invalidity of the underlying contract);
• statutory protection available to arbitrators acting in good faith; and
• confidentiality applicable to the proceedings and the circumstances in which proceedings are heard in private or public.

Which act applies?

The International Act applies to arbitrations in South Africa that are (i) “international”; and (ii) “commercial”. The Domestic Act is not applicable to any arbitration that is within the scope of the International Act. Consequently, if the “international” and “commercial” criteria are satisfied, then the arbitration is, by default, within the scope of the International Act and it is those provisions (including the relevant powers of the courts) that will apply.

The meaning of “international”

Article 1(3) of the International Act confirms that an arbitration is international if:

• the parties have their places of business (being the place most closely connected with the arbitration agreement if they have multiple places of business) in different states; or
• the place of arbitration, place of performance of a substantial part of the obligations, or place most closely connected which the subject matter of the dispute, is situated outside the state in which the parties have their place of business; or
• the parties agree that the subject matter relates to more than one country.

This scope is purposefully broadly drafted. In most circumstances ascertaining whether an arbitration is within the international scope will be straightforward, and UNCITRAL has confirmed in its Explanatory Note to the Model Law that that the criteria will be met in “[t]he vast majority of situations commonly regarded as international”.

However, circumstances may arise where it is not expressly clear if the scope has been met, for example whether the performance of some, but not all, contractual obligations overseas constitutes a “substantial part” of the contract. It could also be difficult to ascertain where a party’s place of business is if they fail to disclose sufficient information about their international commercial activities.

The interpretation and application of the international criteria has not been extensively tested before the South African courts. However, some interpretative guidance can be gained from other countries that have also adopted legislation identical or similar to the Model Law. In this respect UNCITRAL’s Digest of Case Law on the Model Law (‘Digest’) which is available here. The Digest confirms that courts in other Model Law jurisdictions have determined that: 

• A company’s “place of business” can include any location from which a party participates in economic activities in an independent manner, including where they have established factories or production plants, sales or marketing bases, or where administrative functions of the business are carried out.
• The fact that a party’s shareholders are international does not necessarily render the matter international.
• Only one international element needs to be satisfied for the arbitration to be deemed international. For example, an arbitration will be international if a contract is performed overseas, despite both parties having their places of business in the same state and the agreement being governed by the law of that state.
• In determining where a “substantial part of the obligations” is performed, courts have held that:
  • Where an agreement is for the sale of goods, the place of delivery and acceptance of goods, or the place of transfer of risks and loading operations, should be considered as a place where a substantial part of the obligations was performed.
  • “Substantial” could mean ‘most of’ the obligations but could also mean a minority of obligations if they are nonetheless “substantial” in nature, such as the transport of goods between international ports.
  • The place where the breach of obligations occurred is not a relevant consideration.

The meaning of “commercial”

The Model Law’s commentary and footnotes call for a wide interpretation of “commercial” including the supply or exchange of goods or services; distribution agreements; construction; consulting; licensing; investment; financing; exploitation agreements or concession and joint ventures.

Again, the interpretation of this has not been extensively tested before the South African courts but the Digest confirms that courts in other Model Law jurisdictions have determined that: 

• The term should be interpreted broadly to encompass a wide spectrum of activities.
• Agreements for contractor or consultancy services and contracts entered into between a company and a director could be commercial. However, labour and employment disputes in an employer/employee relationship may not be.
• A transaction does not need to involve ‘commercial persons’ to be commercial. For example, a residential property sale can constitute a commercial transaction, and pursuant to Article 1(4) of the International Law, if a party is an individual then their place of habitual residence will serve instead of their “place of business” for the purpose of determining if an arbitration is international.