BUSINESS LAW & TAX Court ruling on arbitration law cuts two ways

In February, the first case on the interpretation of the International Arbitration Act in SA was heard in the Supreme Court of Appeal (SCA)

In Tee Que Trading Services (Pty) Ltd vs Oracle Corporation SA (Pty) Ltd and Another, the SCA was faced with a decision of the high court to stay proceedings instituted before it on the basis that the parties were subject to an international arbitration clause in the agreement under dispute

The International Arbitration Act, by incorporating the Uncitral Model Law, provides that a court faced with a matter subject to an international arbitration agreement shall, on request by a party, stay those proceedings and refer them to arbitration in accordance with the agreement

The SCA held that the courts had no discretion in relation to such matters

In 2018, Tee Que (the appellant) instituted a civil action in the high court against Oracle for damages arising out of a breach of contract Oracle responded to the civil action by way of an application for a stay of those proceedings pending referral of the dispute to arbitration where a court finds an arbitration agreement to be null and void, inoperative or incapable of performance, may it hear the matter in dispute

Oracle contended that in circumstances where an international arbitration agreement is at play, a court must stay the proceedings before it when called on to do so, pending referral of the dispute to arbitration

This was based on the International Arbitration Act, which provides that only

The high court agreed, finding that the provisions of the Uncitral Model Law, which forms part of the International Arbitration Act, applied to the dispute, and that in terms of article 8 of the Model Law, on a proper interpretation of the applicable agreements, it was compelled to order a stay of the action proceedings pending referral of the dispute to arbitration It held that, unlike with the provisions of the Arbitration Act, under the International Arbitration Act, it had no discretion Tee Que took the decision on appeal to the SCA By way of a judgment dated May 17 2022, the SCA dismissed the appeal In doing so, it considered the question of whether the International Arbitration Act and the Uncitral Model Law applied to the dispute It pointed out that the Arbitration Act was enacted in SA with the specific purpose of domesticating the Uncitral Model Law, and that the act and the Uncitral Model Law, as incorporated into the International Arbitration Act Act, is SA law It then had to consider whether, in the context of international arbitrations in accordance with the act, the high court had a discretion to refuse a stay of the civil action proceedings

On the question of the court’ s discretion, the SCA highlighted that the “[Uncitral] Model Law reflects the international approach to international commercial arbitration agreements that, unless an arbitration agreement is null and void, inoperable or incapable of being performed, courts are obliged to stay action proceedings pending referral to arbitration ”

Taxing Matters

The agreements between the parties being valid and operative, the SCA found that there was no basis for interference with the arbitration agreement underlying the dispute, and accordingly that no discretion exists for a court to refuse a stay application in the circumstances

The impact of the SCA’ s judgment cuts two ways

On the one hand, a SA court has no discretion to hear a matter subject to an international arbitration clause where a party to proceedings raises such a clause

In these circumstances the inherent jurisdiction of the high court is effectively ousted by the provisions of the International Arbitration Act

On the other, a party to an international arbitration agreement effectively loses its right of access to court in relation to a dispute and must refer that dispute to arbitration in accordance with the agreement

Failure to do so entitles a counterparty to raise the arbitration agreement and effectively force the matter to arbitration

The SCA’ s judgment will impact litigants’ right of access to courts This raises a potential constitutional issue which was not dealt with before the SCA, and which may in due course occasion a decision by SA’ s apex court, the Constitutional Court, on the issue

In the case of Tee Que however, no appeal to the Constitutional Court has been lodged, and the SCA’ s decision remains the authority on the issue in SA