South African court reaffirms stance on enforcement of arbitral awards

Out-Law Analysis | 23 Sep 2021 | 2:24 pm | 5 min. read

A recent ruling by South Africa’s High Court highlights the application of the UNCITRAL Model Law on International Commercial Arbitration on enforcing an award against an unsuccessful party to an arbitration.

The unsuccessful party had filed subsequent court action in an effort to delay enforcement of the arbitration award and to have its counterclaim, which had failed in the arbitration, determined by the court.

The High Court confirmed that bringing a failed counterclaim before a court by way of action proceedings is a “proverbial flogging of a dead horse” and cannot be used as a ground to delay the enforcement of the arbitral award.

Background to the dispute

A dispute arose between Croatian manufacturing company Industrius and IDS Industry Service and Plant Construction South Africa in 2017, and the parties chose to refer their dispute to arbitration. They agreed that the arbitration would be constituted by a single arbitrator and conducted under the rules of the Association of Arbitrators.

The agreement fell under the definition of an ‘arbitration agreement’ under article 7 of the Model Law, as incorporated by South Africa’s International Arbitration Act 15 of 2017.

Postponing the enforcement of an international arbitral award would not be in line with the spirit of the Model Law in South Africa

Before the arbitration hearing began on 25 May 2020, the parties were involved in several interlocutory applications before the arbitrator. In January 2020, IDS ceased participation in the proceedings due to a dispute which allegedly arose between it and its former attorneys. IDS was invited by the arbitrator to bring an application to postpone the arbitration hearing, but IDS ignored this and also failed to reappoint lawyers for the hearing.

The arbitration hearing proceeded on 25 May 2020 without IDS being present and the arbitrator’s award was published on 9 June 2020, upholding Industrius’ claim and dismissing IDS’s counterclaim.

The case before the High Court

Industrius approached the High Court to make the arbitrator’s award an order of court. IDS opposed this application but, in its papers, it did not dispute that the award was binding on it. Nor did it challenge the award or apply to have it reviewed and set aside – which under the Model Law is the exclusive recourse to a court against an arbitral award.

IDS’ defence was based on a separate action which it instituted in the High Court where it sought the same relief which it had brought in its counterclaim in the arbitration. IDS requested that the enforcement of the arbitral award should be postponed pending the finalisation of the court proceedings which it had instituted.

In support of its argument, IDS said the counterclaim was dismissed by default and that in the absence of IDS, the arbitrator’s alleged consideration of the merits of its counterclaim equates to the award being of no force and effect. It therefore argued that its counterclaim had not been determined at all and that it was free to pursue its counterclaim in the courts of South Africa.

IDS also contended that because the counterclaim was dismissed by default, the arbitrator’s award was not final. It said that due to the dismissal for non-appearance, the arbitrator was prevented from deciding the counterclaim on its merits as this was an error.

Lastly, IDS submitted that the other court proceedings had been set off, and specifically relied on article 36(1)(a)(ii) of the Model Law as a ground on which it believed the court had the power to stay the arbitral award.

Reliance on the act and Model Law

The Model Law was adopted into South African law through the International Arbitration Act. Parties to an international commercial dispute may refer the dispute to arbitration through an arbitration agreement governed by the Model Law. In this case, the arbitration was considered to be an international arbitration because the parties’ business locations were in different countries at the time of concluding the arbitration agreement.

An arbitration award made in terms of the Model Law is binding and enforceable unless certain conditions listed within the act are established. In this case, the court held that IDS failed to raise or prove any of the grounds set out in section 18 of the act to persuade the court to refuse the application to have the arbitration award made an order of court. It is for this reason alone that the court held that IDS’ defence had to fail.

The issue of the counterclaim

With regard to the separate court proceedings relating to the counterclaim, the court found that the arbitrator properly dealt with and considered the counterclaim when he made the arbitration award.

The court also said IDS’ contention that the counterclaim was not dealt with on its merits was without any factual basis, and that IDS should have taken steps to challenge the award in terms of the Act if it was so aggrieved by it.

Referring to a previous case, the court said that it is the decision on the merits, rather than the form of the order granted, which is decisive in South African law. Therefore, it said that the argument by IDS  that the arbitrator had erred in dealing with the counterclaim on the merits in the absence of IDS, was not a valid ground to refuse enforcement of the arbitral award.

Another earlier case supported the court’s view that a party alleging gross irregularity on the part of the arbitrator must establish this. That case also held that where an arbitrator engages in the correct enquiry but errs either on the facts or the law, that is not an irregularity and is not a basis for setting aside an award.

On this basis the court said IDS’s argument that the arbitrator had erred in dealing with the counterclaim on the merits in its absence was not a valid ground to refuse enforcement of the arbitral award.

Spirit of the Model Law in South Africa

The court took a firm stance on its approach when dealing with an application for enforcement of a foreign arbitral award, comparing South Africa’s approach to that adopted in Australia and Asia-Pacific.

It said the Act and Model Law do not provide for the court to refuse or delay the enforcement of the award on the basis that a party has instituted other proceedings that are not related to the arbitral award, or have no bearing on the finality or enforceability of the arbitral award.

The court found that an attempt by a party to set off a proven debt in terms of the arbitral award against its unproven claim in unrelated proceedings is also not applicable to the act or Model Law. In either of the latter circumstances, postponing the enforcement of an international arbitral award would not be in line with the spirit of the Model Law in South Africa.

Reiterating another recent decision, the court in the IDS case held that all issues submitted to the arbitrator must be resolved in a manner which achieves finality and certainty. It said the dismissal of IDS’ counterclaim was brought to finality, and whether or not the arbitrator was correct should not and cannot be used as a ground to challenge the enforcement of the arbitral award.

This judgment highlights the approach which South African courts take in regard to delaying tactics by parties to an international arbitration and that these tactics cannot be tolerated due to the hampering effects on international trade.

It is clear that South African courts are upholding the purpose of the International Arbitration Act and are establishing South Africa as a reliable forum to resolve international disputes without any fear of unsuccessful parties succeeding in court as a scheme to delay the resolution and enforcement process.

This case also highlights the importance of an arbitration agreement and party autonomy which it creates in the case of resolving disputes. Diverting from an arbitration agreement and approaching the court for relief in the first instance would be counterintuitive to the purpose of the arbitration agreement.

It is clear that when an unsuccessful party to an international arbitration wishes to have the arbitration award set aside or reviewed, it must take care in applying the appropriate laws if there is any prospect of success. A clear stance must be taken as to whether the unsuccessful party disagrees with the arbitration award, and the relevant grounds on which it relies must be clearly spelled out in its papers.

Co-written by Kirsten Gilbert-Dempsey of Pinsent Masons