Opinion: South Africa Could Compete As A Financial Arbitration Center
From AfricanLawBusiness. Opinion by Paul Stothard, Chiz Nwokonkor, and Giles Harvey of the Beijing-based law firm King & Wood Mallesons.
Large-scale and long-term investments made in foreign jurisdictions face many risks, particularly for investments in states with high levels of political and regulatory risk or developing judicial systems.
The vast bulk of Africa-related international arbitration cases are resolved in Europe.
Several locations have sought to establish their influence as regional centers for international arbitration in Africa, including Egypt, Rwanda, Lagos and Mauritius.
The curious absence from the list is South Africa, the continent’s second largest economy.
One of the greatest risks of investing in high-growth markets comes from protectionist states seeking to increase their revenue or popularity at the expense of foreign investors, by seizing assets, demanding a share of profits, or otherwise failing to maintain favorable investment conditions.
In such circumstances, investors are particularly concerned about the legal protections available to them during the life of their investments. Bilateral and multilateral investment treaties (BITs, MITs) have become the principle vehicle to overcome these challenges and mitigate the risks of government intervention.
These instruments provide investors with means of redress through international arbitration. This has the advantage of securing enforceable adjudication from an institution that is independent of the host state subject to the dispute according to an international legal standard.
As Africa’s second largest economy by GDP with first-rate domestic legal profession, South Africa could become a major competitor for the world’s established arbitration centers and establish itself as the first truly international arbitration center in Africa.
The international community has long perceived a lack of support for arbitration in South Africa from both judiciary and legislature. In 2005, Judge John Hlophe (Judge President of the Cape Provincial Division of the High Court of South Africa) wrote that arbitration undermined the pace of judicial transformation in South Africa.
He considered that to strengthen arbitration would be to weaken the courts. His concern was that arbitration was excessively secretive, to the detriment of the rule of law and that tribunals are not bound by legal precedent, a combination of factors that could operate to deprive the courts of South Africa with the opportunity to develop a national body of law with test cases and fact patterns.
This is a familiar argument against the coexistence of arbitration and litigation, although one largely abandoned in most developed economies, where policy considerations have tended to emphasize party autonomy over other legitimate concerns.
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