1

STELLENBOSCH UNIVERSITY

FACULTY OF LAW

LL.M BY COURSE WORK

INTERNATIONAL COMMERCIAL ARBITRATION (54925-813)

INTRODUCTION (2025)
Outline

1.1 What is arbitration?

1.2 Why is arbitration used for the resolution of international commercial disputes?
1.3 Hypothetical case study
1.4 Interaction between the parties’ chosen arbitration rules and the applicable arbitration
law
1.5 Differences between English (“common-law”) and “civil-law” countries' law of
procedure

This introduction explains what arbitration is and why it is currently the preferred method for
resolving international commercial disputes. It then briefly examines the relative use of
arbitration in the various regions of the world. In the course of this examination, the reasons
why specific arbitration statutes have been selected for particular attention in this module will
be explained. National arbitration legislation for international arbitration will be discussed in
part 2 of this module, with the focus being on the UNCITRAL Model Law on International
Commercial Arbitration. South Africa belatedly adopted the Model Law for international
arbitration in 2017, while retaining a separate statute for domestic arbitration.

The introduction continues with a brief case study on the course of a hypothetical international
arbitration, commencing with the arbitration agreement and concluding with the enforcement
of the arbitral tribunal’s award. The purpose of the case study is to highlight the issues and
problems which may arise in the course of a typical international arbitration. This will give
students a good idea of what the module is about and how the various sections fit together.
The case study will be discussed during the introductory session. The more important issues
raised by the case study will be examined in detail in subsequent parts of the module. The
introduction also discusses the interaction between the parties’ chosen arbitration rules and
the applicable arbitration law.

The introduction concludes with a brief consideration of the basic difference in approach
between jurisdictions with a common-law tradition and a civil-law tradition regarding civil
procedure. This distinction is important, as lawyers for parties and international arbitrators
(particularly inexperienced arbitrators) tend to approach arbitral procedure (including the
presentation of evidence) on the basis of their own tradition, because they feel most
comfortable with this approach.

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1.1 What is arbitration?

Arbitration as a method of resolving disputes is not usually defined in arbitration legislation. 1

An eminent commentator on international commercial arbitration, Gary Born, has said that
there are nearly as many definitions of arbitration as there are commentators or courts that
have addressed the subject. 2 Born himself defines arbitration as follows:
“[A]rbitration is a process by which parties consensually submit a dispute to a non-
governmental decision-maker, selected by or for the parties, who renders a binding
decision finally resolving the dispute in accordance with neutral, adjudicative
procedures affording the parties an opportunity to be heard.” 3

From a South African perspective, arbitration may be defined as “an adjudicative process,
which takes place pursuant to an agreement between the parties to a dispute, whereby that
dispute is referred for final determination to an independent and impartial arbitral tribunal
appointed by or on behalf of the parties”. 4 It appears from these two definitions that arbitration
has five essential characteristics: 5

(a) it is a procedure for resolving disputes;

(b) it has a consensual basis derived from an enforceable agreement between the
parties;
(c) the adjudicator 6 or arbitrator is appointed by or on behalf of the parties;
(d) the agreement must contemplate that the arbitrator will proceed impartially and
make an award after receiving and considering evidence and other
submissions from the parties; and
(e) the arbitrator's award is final.

The existence of a dispute is a prerequisite to make the arbitration agreement enforceable

and to establish the arbitral tribunal’s jurisdiction. 7 The requirement of a dispute is also used
to distinguish arbitration from certain other contractual provisions for the reference of matters

1 At least not in a way that explains what arbitration actually is. Compare article 2(1) of the UNCITRAL Model Law,

which defines arbitration as including both ad hoc and institutional arbitration. These concepts will be considered
in part 3. For a basic definition of the concept, see Blackaby & Partasides Redfern and Hunter on International
Arbitration (7th ed) para 1.04-1.08. See however the Ghana Alternative Dispute Resolution Act of 2010 s 135, which
defines arbitration as “the voluntary submission of a dispute to one or more impartial persons for a final and binding
determination”.
2 Born GB International Commercial Arbitration (2nd edition, 2014, Kluwer Law International, The Netherlands) 291.

3 Born International Commercial Arbitration (2nd ed) 291 and 1st ed 252.

4 See Lawsa (3 ed vol 2 (2015) “Arbitration” 163 para 75.

5 See Butler & Finsen (1993) 1-3; Lawsa (3 ed vol 2 (2015) “Arbitration” 163 para 575. Compare Total Support

Management (Pty) Ltd v Diversified Health Systems (SA) (Pty) Ltd 2002 4 SA 661 (SCA) 673F-G. See also Russell
on Arbitration (24th ed 2015) and England and Wales Cricket Board Ltd v Kaneria [2013] EWHC 1074 (Comm) for
an English perspective. Gaillard & Savage (eds) Fouchard, Gaillard & Goldman on International Commercial
Arbitration (Kluwer, The Hague, 1999) state:
“In our view, arbitration should be defined by reference to two constituent elements which commentators and the
courts almost unanimously recognize. First, the arbitrators’ task is to resolve a dispute. Second, the source of this
judicial role is a contract: the arbitrators’ power to decide a dispute originates in the common intention of the
parties.”
6 The term “adjudicator” is used here in its generic sense as referring to the person who must decide and rule on

the substance of the dispute between the parties. Both an arbitrator and a judge have this function. (For a detailed
discussion, see Born International Commercial Arbitration (2nd ed) 285-290). The term “adjudication” however also
refers to a special type of dispute resolution used in the construction industry.
7 See Telecall (Pty) Ltd v Logan 2000 2 SA 782 (SCA) 786C-786J. See too Blackaby & Partasides Redfern and

Hunter (7th ed) para 1.19 – 1.24. As to the meaning of “dispute”, see Collins Contractors (Pty) Ltd v Baltic Quay
Management (1994) Ltd [2004] EWCA Civ 1757 paras 62-64. See also the module notes for part 2, para 2.3.

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to a third party for determination, for example valuation. 8 However, particularly in a South
African context, a person is sometimes appointed by the parties to resolve their dispute by
“acting as an expert and not as an arbitrator”. In such cases, it will be necessary to decide
whether or not the process qualifies as arbitration with reference to essential characteristic
(d), referred to above. 9

Arbitration has a consensual basis in that the arbitral tribunal’s jurisdiction is derived from the
agreement of the parties to the dispute. This consensual basis of the arbitral tribunal’s
jurisdiction is one of the fundamental principles of arbitration law, referred to in the literature
as “party autonomy”. The principle of party autonomy entails that the parties should be free
to agree how their dispute is resolved, subject only to such safeguards as are necessary in
the public interest. 10 The arbitration discussed in this module is private arbitration. It has been
said that “[t]he twin hallmarks of private arbitration are thus that it is based on consent and
that it is private, i.e. a non-state process”. 11 Private arbitration must be distinguished from
statutory arbitration, which generally occurs when the parties to a particular type of dispute
are compelled to refer that dispute to arbitration in terms of the provisions of a specific
statute. 12 This module deals only with private arbitration, where arbitration is based on the
consent of the parties.

8
See further Butler & Finsen (1993) 44-50 and Lawsa “Arbitration” 170-172 para 86 for how arbitration is
distinguished from valuation and certification and the consequences of this distinction. There is an anomaly in
South African law regarding the grounds on which a court will respectively set aside a certificate and a valuation.
In Ocean Diners (Pty) Ltd v Golden Hill Construction CC 1993 3 SA 331 (A) 340F-G, it was held that a certificate
may be set aside where there has been fraud or collusion or where the certifier has exceeded his or her mandate.
In Bekker v RSA Factors 1983 4 SA 568 (T) 573E-F it was held that the valuation will be set aside where it is
grossly unreasonable. The Namibian court in Rössing Stone Crushers (Pty) Ltd v Commercial Bank of Namibia
1994 2 SA 622 (Nm HC) followed the South African Bekker case rather than the Zimbabwean Macey's
Consolidated case, discussed in Butler & Finsen 49-50, especially n 104. For an international perspective, see
Born International Commercial Arbitration (2nd ed) 259-271 or 1st ed 223-234.
9 See e g Perdikis v Jamieson 2002 6 SA 356 (W) 359D, 362B-363I, regarding a situation where the parties also

agreed that the expert’s determination would be final and binding. An expert is entitled to act solely on his or her
own expert opinion, even if the parties were given a hearing. The arbitrator must act on the evidence and
submissions of the parties, after observing the requirements of due process. (In a more recent case, Civair
Helicopters CC v Executive Turbine CC 2003 3 SA 475 (W) 485J-489A par 31-39, there is some confusion between
the terms “expert” and “umpire” and between “certifier” and “quasi-arbitrator”.) Compare Gaillard & Savage
International Commercial Arbitration 19, who also refer to “quality arbitrations” where the arbitrator is expected to
rely on his or her own expertise. Although “quality arbitrations”, also referred to as “look-sniff” arbitrations, from a
dogmatic perspective may best be regarded as a hybrid form of dispute resolution, the arbitrator’s decision is
accepted in practice as an arbitral award, enforceable under the relevant arbitration legislation and international
conventions. See further Lawsa “Arbitration” 173-174 para 88 and Welihockyj v Advtech Ltd 2003 6 SA 737 (W)
745C-747A par 17 for how arbitration may be distinguished from expert determination. See generally on expert
determination clauses Santens A “Expert determination clauses in contracts providing for international arbitration”
(2007) 23 Arb Int’l 687-689; Jones D “Is expert determination a ‘final and binding’ alternative?” (1997) 63 Arbitration
213-226; and McHugh M “Expert determination” (2008) 74 Arbitration 148-162.
10 See the English Arbitration Act 1996 s 1(b), which lists party autonomy as one of the three general principles on

which the Arbitration Act of 1996 is based. Party autonomy under the UNCITRAL Model Law is considered in part
2.
11 See Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews [2009] ZACC 6 para 198, per O’Regan ADCJ.

12 See e.g. the Labour Relations Act 66 of 1995 (LRA) ss 133 and 136. Arbitrations under the LRA take place under

the auspices of the Commission for Conciliation, Mediation and Arbitration (the CCMA). Even when the CCMA’s
jurisdiction is based on the agreement of the parties, the arbitration is not a private arbitration as the CCMA is a
state institution and the arbitrator (commissioner) is appointed by the CCMA. The arbitrator therefore exercises
public power. Although statutory arbitrations in South Africa normally take place under the Arbitration Act 42 of
1965 (see s 40), the LRA s 146 expressly excludes the Arbitration Act’s application to arbitrations under the
auspices of the CCMA.

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It appears from 1.2 below that the opportunity for parties to participate in the selection of the
arbitral tribunal is one of the advantages of arbitration compared to litigation. 13

Some traditional definitions of arbitration refer to the function of the tribunal as being to resolve
the dispute in a “judicial manner”. 14 This is potentially misleading in that it could create the
impression that the arbitral tribunal should follow basically the same procedure as the ordinary
civil courts. This would create particular problems when parties (and arbitrators) of different
nationalities have different procedural traditions. Moreover, one of the advantages of
arbitration compared to litigation is the flexibility it allows in the procedure. The fourth essential
characteristic referred to above basically requires the arbitral tribunal to observe the principle
of procedural fairness or due process. 15 Arbitration is nevertheless a form of private
adjudication, with the result that the function of the arbitrator is not administrative but judicial. 16
In particular circumstances, the parties may expect the arbitrator to play an investigative role
as opposed to merely adjudicating on the evidence and submissions presented by the
parties. 17

The arbitral tribunal’s decision on the merits of the dispute is known as an award. 18 As
discussed below, the finality of the award is one of the advantages of arbitration compared to
litigation. “Finality” means that there is no right of appeal to the courts, where it appears that
the arbitral tribunal’s award is incorrect on the merits. 19 However, the court does have the
power to review the award, particularly if the procedure followed by the tribunal has been
fundamentally unfair or where the enforcement of the award would be contrary to public
policy. 20

This module is specifically concerned with international commercial arbitration, as opposed

to arbitration as such. The meaning and significance of “international” and “commercial” in
the context of the expression “international commercial arbitration” are considered in part 2. It
has been said that international commercial arbitration is a hybrid:

“It begins as a private agreement between the parties. It continues by way of private
proceedings, in which the wishes of the parties play a significant role. Yet it ends with an

13 The appointment of the arbitral tribunal is considered in more detail in part 7.

14 Compare also England and Wales Cricket Board Ltd v Kaneria [2013] EWHC 1074 (Comm) para 27. See too
Gaillard & Savage International Commercial Arbitration 11-12, who refer to the arbitrators’ “judicial role”. However,
in the context, they are referring to the arbitrators’ function to make a binding award in order to resolve a dispute,
rather than the procedure adopted for that purpose.
15 See e.g. the UNCITRAL Model Law article 18; the English Arbitration Act s 1(a) and 33(1)(b).

16 See the Total Support Management case above par 25, cited with approval in Sidumo v Rustenburg Platinum

Mines Ltd 2008 2 SA 24 (CC); CCT 85/06; [2007] ZACC 21, par 211 and 212 (per Ngcobo J). See too Born
International Commercial Arbitration (2nd ed) 285-290 or 1st ed 247-253 on the adjudicatory character of arbitration.
17 See Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews [2009] ZACC 6 para 223 n 39, which cautions against

equating fairness with the procedure provided by the Uniform Rules of Court. See also n 9 above regarding “look
sniff” arbitrations.
18 An award on the merits must be distinguished from a procedural ruling by an arbitrator. The formalities for

making an award do not apply to a procedural ruling, and the status of an award and a procedural ruling differ.
19 The parties may provide by agreement for a right of appeal to another arbitral tribunal. The same result may be

achieved by selecting a set of arbitral rules with such a provision. Under South African law, it is not however
possible for the parties to by agreement to create a right of appeal to the court (see Telcordia Technologies Inc v
Telkom SA Ltd 2007 3 SA 293 (SCA) par 67; Daljosaphat Restorations (Pty) Ltd v Kasteelhof CC 2006 6 SA 91
(C)).
20 See the module notes for part 2 regarding ss 32 and 33 of the (South African) Arbitration Act 42 of 1965 and

articles 34 and 36 of the UNCITRAL Model Law. The grounds for challenging the award are considered in more
detail in part 9.

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award that has binding legal force and effect and which, under appropriate conditions, the
courts of most countries of the world will recognise and enforce. In short, this essentially
private process has a public effect, implemented with the support of the public authorities
of each state and expressed through that state’s national law.” 21

1.2 Why is arbitration used for the resolution of international commercial disputes?

Arbitration may be considered as the preferred method of resolving international commercial

disputes, rather than the dominant method. As Born points out, 22 the number of disputes
settled by negotiation, with or without the involvement of a third-party conciliator or mediator,
dwarfs those that are litigated or arbitrated. Arbitration is however clearly preferred to litigation
for cross-border commercial disputes. Parties to an international commercial contract can
reduce uncertainty as to which court will have jurisdiction by including a forum selection
clause. 23 Consider the factors which should be taken into account in drafting a forum selection
clause for a commercial contract between two parties from Brazil and South Korea
respectively. 24 Born cautions that even where the parties have included a forum selection
clause in their contract, many states impose limitations on the enforceability of these clauses.
The selected national court may require a “reasonable relationship” between the parties’
contract and the forum, a forum non conveniens objection may be upheld and public policy
may also play a role. 25 Parallel proceedings in different national courts and the possibility of
a protracted appellate procedure can also undermine the procedural efficacy of forum-
selection clauses.

Born 26 lists the following objectives of international arbitration agreements:

• The neutrality of the dispute resolution forum;
• A centralized dispute resolution forum;
• Enforceable arbitration agreements and awards;
• The commercial expertise of the tribunal;

21 See Blackaby & Partasides Redfern and Hunter (7th ed) para 1.92. See also Born International Commercial

Arbitration (2nd ed) 214-217 or 1st ed 184-189. International commercial arbitration is a hybrid in that it combines
the jurisdictional theory and the contractual theory regarding the nature of arbitration. In terms of the jurisdictional
theory, judicial power is the exclusive preserve of the state and arbitrators exercise powers delegated to them by
the state. This theory attaches considerable importance to the place of the arbitration, the law of arbitration and to
the influence of the court at the place of arbitration. According to the contractual theory, arbitration is a “private
and contractual judicial procedure”, an extra-judicial process which depends on the contract between the parties.
This contract does not, however, exist in a vacuum. The state provides the basic legal framework within which the
parties both contract and arbitrate. See Asouzu “Arbitration and judicial powers in Nigeria” (2001) 18(6) J Int’l Arb
617 at 619-620; Asouzu International Commercial Arbitration and African States (Cambridge University Press,
Cambridge, 2001) 170.
22 Born International Commercial Arbitration (2nd ed) 96 or 1st ed 71.

23 A forum selection clause is an agreement which either permits or requires parties to pursue their claims against

each other in a designated national court. Such agreements can be exclusive or non-exclusive. See Born
International Commercial Arbitration 2nd ed (2014) 71 or 1st ed 2009 67.
24
Born International Commercial Arbitration 2nd ed 70-71 (65) points out that procedural, choice-of-law (conflict of
laws) and substantive legal rules differ from country to country. Relative convenience and language are additional
factors. Competence and integrity of judges also vary between different national courts. Born 71 (66) refers in this
regard to the report by Transparency International Global Corruption Report 2007: Corruption in Judicial Systems.
This report is available at www.transparency.org. The position of South Africa is discussed in the Report by Judith
February at 270-274. Born 81 (79) also remarks that even national courts with a reputation for commercial
expertise and staffed by competent judges of integrity, like the English Commercial Court in London and the Federal
Court in New York have their idiosyncrasies, particularly from the perspective of foreign users. The costs of litigating
in London are high, partly because of the divided bar and in the US costs of written and oral discovery are high and
costs are not recoverable by the winning party.
25 Born International Commercial Arbitration 2nd ed 79 (77).

26 Born International Commercial Arbitration 2nd ed 73-91 (71-90).

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• Finality of decision;
• Party autonomy and procedural flexibility;
• A saving in time 27 and expense, bearing in mind that there is usually no appellate
process;
• Confidentiality and privacy are easier to achieve, as discussed in part 12 below; and
• Facilitating amicable settlement if the opportunities presented by the arbitral process
are utilised.

These objectives relate to the perceived advantages of arbitration clauses, compared to a

forum selection clause. In short, the advantages generally claimed for arbitration compared
to litigation are well documented. 28 Some of these, for example, the use of an arbitrator with
specialised knowledge and confidentiality, may apply in an international context. If the
flexibility of the procedure is utilised, arbitration should be quicker and in a domestic context,
less expensive. Section 1(a) of the English Arbitration Act of 1996 states the object of
arbitration as being "to obtain the fair resolution of disputes by an impartial tribunal without
unnecessary delay or expense". Section 33(1)(b) imposes a statutory duty on the arbitral
tribunal to adopt procedures suitable to the circumstances of the particular case to avoid
unnecessary delay and expense. Section 40 imposes a duty on both parties to do all things
necessary for the expeditious conduct of the proceedings. 29 In an international context,
however, if the arbitration is administered by an arbitral institution and if the arbitral tribunal
comprises three arbitrators, it is unlikely to be cheaper than litigation, 30 unless the decision of
the court of first instance is taken on appeal. (Part 4 (in the context of modern arbitration rules)
and part 8 consider techniques for keeping expense and delay in the context of international
arbitration within reasonable limits.)

As discussed above, the real reason for the use of arbitration to resolve international
commercial disputes, where attempts at a negotiated settlement have failed, is that there is
no realistic alternative. Each party may prefer to use the courts of its own state but not the
courts of the country of the other disputant, particularly if that disputant is a state. 31 Moreover,
because of the success of the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of 1958, both an arbitration agreement and a foreign arbitral award
will usually be easier to enforce than a forum selection clause or a foreign judgment. 32

27 Born International Commercial Arbitration 2nd ed 88 (86) nevertheless warns that complex and substantial

commercial disputes often take between 18 and 36 months to resolve by arbitration.

28 See eg Born International Commercial Arbitration 2nd ed 73-91 (71-90), who provides a well-balanced and

objective discussion; Bernstein, Tackaberry & Marriott 4-6; Blackaby & Partasides Redfern and Hunter (7th ed) para
1.122-1.128; Butler & Finsen 19-23; Lawsa “Arbitration” 401-402 para 547. For a detailed discussion in an African
context, see Asouzu International Commercial Arbitration and African States 27-50.
29 See Butler “A new domestic Arbitration Act for South Africa: what happens after the adoption of the UNCITRAL

Model Law for International Arbitration? (1998) 9 Stell LR 3 at 14-19 for a brief discussion of these provisions. The
SA Law Reform Commission has recommended the inclusion of similar provisions in its proposed Draft Arbitration
Bill for domestic arbitration. See SA Law Reform Commission’s Report Domestic Arbitration (May 2001) 14-16
and the Draft Bill ss 2, 28 and 35. See too article 1036(3) of the Dutch Arbitration Act of 2015, which imposes a
duty on both the tribunal and the parties to prevent unreasonable delay.
30 Hunter “International commercial dispute resolution: the challenge of the twenty-first century” (2000) 16

Arbitration International 379 382.

31 The additional problems which can arise where one of the parties to an international commercial arbitration is a

state are considered in part 10. See too Webster Handbook of UNCITRAL Arbitration (Sweet & Maxwell 2010)
257, who refers to a survey of corporate users in 2008, which concluded that flexibility is the most widely perceived
advantage of international arbitration.
32 Born International Commercial Arbitration 2nd ed 77-80 (76-78); Hunter (2000) 16 Arbitration International 382.

See the SA Law Reform Commission’s Report Arbitration: An International Arbitration Act for South Africa (July

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Arbitration is however not without its disadvantages and drawbacks as a method for resolving
international commercial disputes. 33 Because of the expense and delays often associated
with such proceedings, 34 the parties should give serious consideration to resolving the dispute
by negotiation or by involving a third party as mediator or conciliator. 35 As mentioned above,
one of the objectives of international arbitration is to provide a centralized dispute resolution
forum for all disputes arising between the parties out of a particular commercial relationship.
The purpose is to avoid forum-shopping by a party seeking the most favourable national court,
which could well result in protracted disputes regarding jurisdiction of national courts, choice
of law, evidentiary procedures and ultimately the recognition of foreign judgments. 36 However,
this advantage does not apply to multi-party disputes, where the disputants are not parties to
the same arbitration agreement.

An amusing and certainly apocryphal account of a disastrous arbitration, known as the

Macao 37 Sardine Case has been given by the well-known English jurist and arbitrator, the late
Sir Michael Kerr. 38 The events supposedly took place at least 40 years ago. The villain of the
story was a company based in what was then the Portuguese enclave of Macao on the coast
of China. The company had a long-term contract with a buyer from Taiwan to supply tinned
sardines. A particular consignment of 400 tons FOB (the equivalent of 280 000 tins of
sardines) was due. The company had the labour and the tins, but a sharp increase in the
prices of fish and the oil in which they were packed, would make it financially ruinous to
perform. Failure to deliver timeously, however, would have been disastrous for the company’s
commercial reputation. Therefore, the tins were filled with mud of the same specific density
as sardines and duly delivered. Over a period of some 4½ years, the consignment was resold
and changed hands many times in a rising market, sometimes without the consignment ever
being unloaded from the ship. However, then an earthquake took place in the Philippines,
causing a food shortage. The consignment was bought and placed on its shelves by a Manila
supermarket. “Then all hell broke loose”.

There was a long string of contracts from seller to buyer, but with no provision for the last
buyer (the Manila supermarket) to be able to sue the first seller (the Taiwanese dealer) direct.
Nevertheless, in terms of the contracts, the Hong Kong commercial court had jurisdiction in all
these matters. By using the court rules on consolidation and third party procedure, it was
possible to consolidate the cases to be heard at a single hearing involving 47 plaintiffs and
defendants. The plaintiffs contended that the product was not fit for its intended use, namely

1998) paras 3.3 – 3.5 regarding the importance and success of this Convention. The Convention is considered in
more detail in part 9.
33 See Blackaby & Partasides Redfern and Hunter on International Arbitration (7th ed) para 1.129 – 1.149, who

refer to high costs, delay, the limited powers of arbitrators, difficulties regarding joinder in the case of multi-party
disputes (see Part 12.1), conflicting awards on similar issues (as there is no system of precedents in arbitration)
and “judicialisation” ie arbitration has become too like litigation, as the main problems.
34 In the survey referred to by Webster Handbook of UNCITRAL Arbitration 257-258, expense, protracted
proceedings (through simulating court proceedings), court intervention in countries without modern arbitration
legislation and the lack of a mechanism for joinder or intervention by third parties were perceived as the main
disadvantages by corporate users of international arbitration.
35 See part 13.1 of these module notes regarding the possible use of ADR techniques and multi-tiered dispute

resolution clauses, using mediation for the first tier.

36 See Born International Commercial Arbitration (2nd ed) 76-77.

37 Macao is the usual English spelling for Macau, a former Portuguese enclave on the east coast of China, which

reverted to Chinese sovereignty in 1999.

38 See Kerr “Arbitration v litigation / the Macao sardine case” (1987) 3 Arbitration International 79-86, reprinted in

(May 2002) LCIA News 11-16.

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human consumption. Such defences as the sellers raised made no impression on the court
and the only issue to be resolved in each case was therefore the quantum.

Unfortunately for the Taiwanese dealer, which now wanted to recover its losses from the
Macao producer, the contract between these two parties contained a valid arbitration clause,
enforceable under the Geneva Protocol of 1923 or possibly the New York Convention of 1958.
It provided for each party to appoint an arbitrator, who would jointly appoint the presiding
arbitrator. The Macao party sought refuge in delaying tactics and much time was wasted in
appointing the tribunal. The Macao nominee was the in-house legal adviser of the local
casino. The arbitrators were not prepared to proceed without a substantial deposit for their
fees and the Taiwanese dealer eventually had to pay the deposits for both parties. Procedural
skirmishes and preliminary hearings to deal with them continued. Seven years after the
earthquake, it seemed that a hearing on the merits was about to take place. Then the arbitrator
appointed by the Macao party unexpectedly resigned, on account of alleged ill health, a not
unknown delaying tactic.

Eventually, it was agreed by the parties that the presiding arbitrator of the arbitral tribunal (a
retired trader in sardines, resident in Brunei) should hear the dispute as sole arbitrator. At the
hearing and in preparing the award, the arbitrator carefully considered the evidence regarding
the trading history of the consignment of sardines, as well as the legal arguments regarding
the application and content of the lex mercatoria. He then based his award on a point raised
by the Macao defendant in its defence, but which had not previously impressed the lawyers.
They were not from the trade. This point was that the consignment was fully fit for its intended
purpose, namely sale and resale, as evidenced by the considerable number of sales and
resales over the 4½ year period preceding the earthquake. The Taiwanese party, having been
the unsuccessful defendant in the court proceedings, now as claimant in the arbitration, lost
the arbitration, with costs. Subsequent attempts by the Taiwanese party to take the award on
review to the courts were also an expensive failure.

This sad story illustrates one inherent problem with arbitration in a string contract situation,
namely the inability to consolidate separate arbitration proceedings raising the same issues
without the agreement of all the parties involved. This problem is discussed in part 12. The
problem of the abuse of the arbitral process by the Macao party, as a delaying tactic, would
be much less successful today if the arbitration took place under the auspices of a reputable
arbitration institution with modern rules aimed at preventing delay. Modern arbitration statutes
also strengthen the position of the arbitral tribunal and the claimant effectively to counter
delaying tactics by a defendant. These aspects will be dealt with in greater detail during other
parts of this module.

1.3 Hypothetical case study

The main purposes of the case study are to give students an idea of the various stages of an
international commercial arbitration as well as the diversity of matters which may require
attention. It also illustrates the interaction between the parties’ chosen arbitration rules and
the applicable arbitration law, explained further in 1.4 below. At this introductory stage, the
emphasis is on problem identification and where to look for possible solutions, rather than to
examine the solution(s) to each problem or the taking of effective preventive steps to avoid
the problem in any detail. (For revision purposes, note that most of the matters raised can be
answered with reference to material prescribed for parts 2, 4 and 13. When revising the case

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study, students will get more benefit from it if they first try to work out their own answers, before
looking at the PowerPoint slides on SunLearn.)

Basic facts

(Please note that the facts of this case study should not be regarded as typical. They have
been deliberately devised to illustrate a substantial number of the problems which could arise
where there has been insufficient care in drafting the arbitration agreement. Although the
basic facts apply to all the subsequent problems (unless qualified for purposes of a particular
problem), the facts of the problems themselves are not cumulative. Each problem should
therefore be considered in the light of the basic facts and the additional information furnished
for that problem only. The case study is based on the existing South African law (including
the International Arbitration Act 15 of 2017) To the extent that Malaysian arbitration law is
relevant, it must be assumed that Malaysia has adopted the UNCITRAL Model Law of 1985
without alteration. 39)

A Malaysian manufacturer contracts with a South African company to manufacture certain

machinery in Malaysia and then to deliver it to the South African company in South Africa.
The terms of the contract appear from a written order sent by the South African party to the
Malaysian manufacturer on 20 August 2024. In terms of the order, the Malaysian
manufacturer should accept it by signing and returning a copy of the order to the purchaser in
South Africa. The manufacturer fails to do so and simply delivers the machinery. The order
form contains the following arbitration clause:

“All disputes arising out of or in relation to this contract shall be referred to arbitration
in Gauteng, South Africa under the UNCITRAL Arbitration Rules of 1976.

The Malaysian manufacturer uses a South African subcontractor to make certain components
of the machinery. There is no arbitration clause in the contract between the Malaysian
manufacturer and the South African subcontractor.

Shortly after its installation in South Africa and before the full purchase price has been
received, the machine malfunctions and is badly damaged in the process. The South African
purchaser alleges that the machinery had a major defect for which the manufacturer is liable.
The Malaysian manufacturer denies liability on this basis and states that any malfunction has
been caused by the failure of the South African purchaser to follow the operating instructions.
In the alternative, the Malaysian manufacturer alleges that the problem was caused by
defective components furnished by the South African subcontractor, who is therefore liable to
indemnify the manufacturer for any damages, which it may have to pay to the South African
purchaser.

39 Malaysia’s Arbitration Act of 2005 substantially follows the Model Law and Malaysia is recognised by UNCITRAL
as a Model Law jurisdiction. See also Davidson WSW & Rajoo S “The New Malaysian Arbitration Act 2005” (2006)
72 Arbitration 257 at 264. The Malaysian Act was substantially influenced by New Zealand’s Arbitration Act, prior
to the amendment of the latter statute in 2007. According to UNCITRAL’s website, Malaysia updated its arbitration
legislation in 2018 and is now regarded by UNCITRAL as having legislation complying with the 2006 version of the
Model Law. See also the Malaysia Arbitration Act 2005 as amended in 2018.

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Problem 1
Assume that the South African purchaser wishes to refer the dispute to arbitration in Gauteng.
Is there a valid arbitration agreement for purposes of South African law? Would your answer
differ if the validity of the agreement had to be determined according to Malaysian arbitration
law? Discuss both questions briefly. Assuming that there is a valid arbitration agreement,
which version of the UNCITRAL Arbitration Rules will apply? Discuss briefly.

Problem 2
Assume that there is a valid arbitration agreement. If the Malaysian manufacturer sues the
South African purchaser in the South African high court for the balance of the purchase price,
is the South African party entitled to have the action stayed so that the matter can be referred
to arbitration? Could the Malaysian party successfully apply to the South African high court
for an order that the arbitration agreement should be of no effect? To what extent would your
answer to these two questions differ if the purchaser was from Namibia on the assumption
that the applications were made to the High Court in Windhoek? Discuss each question
briefly.

Problem 3
How many arbitrators are required in the absence of an agreement on this point between the
parties? Discuss briefly. Assume that the Malaysian manufacturer (as respondent in the
arbitration) fails to nominate an arbitrator. What happens in this event and who appoints the
tribunal?

Problem 4
Assume that the South African purchaser appoints an arbitrator who although being an
experienced commercial lawyer is also the brother-in-law of the South African company’s
managing director. Is the Malaysian party in principle entitled to object to the appointment and
if so, who must decide on this objection in the first instance?

Problem 5
Assume that a suitable arbitral tribunal has at last been appointed and that the arbitration is
going to take place in Gauteng. Assume further that the Malaysian manufacturer has received
a substantial portion of the purchase price, but is still exposed to a very large claim for
damages. The South African subcontractor is now in liquidation, so the manufacturer’s alleged
claim for indemnification against the subcontractor is worthless. The Malaysian respondent
in the arbitration for tactical reasons therefore alleges that its contract with the South African
party is illegal, being subject to South African law while contravening certain South African
statutory regulations and that the arbitration clause is therefore for this reason also invalid.
How should the arbitral tribunal deal with this allegation and has the Malaysian party forfeited
its right to challenge the validity of the arbitral proceedings by participating in the appointment
of the tribunal? Discuss.

Problem 6
Assume that the Malaysian respondent hears that the South African purchaser has called in
a British company to repair the machine. The Malaysian company fears that the repairs will
make it impossible for the Malaysian company and its experts to establish and prove the cause
of the breakdown and damages. What can it do and who should it approach for relief? Discuss
briefly.

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Problem 7
Is the Malaysian party entitled to obtain full disclosure of documents (discovery) against the
South African claimant as in a high court action? Discuss briefly.

Problem 8
Is the arbitral tribunal obliged to apply rules of substantive law to the merits of the dispute, and
if so, which system must it apply? Discuss briefly.

Problem 9
Assume that an award has been given by the arbitral tribunal in Gauteng against the Malaysian
manufacturer, in which it has been ordered to pay a substantial amount of damages to the
South African purchaser. The Malaysian party believes that the award is wrong on the merits.
Although most of the Malaysian party’s assets are in Malaysia, it has a valuable asset in South
Africa in the form of its shares in its South African registered subsidiary. Can the Malaysian
party seek to have the award set aside because of the alleged wrong decision on the merits?
Would it be more beneficial (in principle) to challenge the award in Gauteng or to resist its
enforcement by a South African court?

1.4 Interaction between the parties’ chosen arbitration rules and the applicable
arbitration law

One of the points illustrated by the hypothetical case study above concerns the interaction
between the parties’ chosen rules and the applicable arbitration legislation. This law will
normally be the arbitration law at the juridical seat of the arbitration. 40

Assume for example, that the parties agree to hold their arbitration under the ICC Rules in a
jurisdiction which has adopted the UNCITRAL Model Law on International Commercial
Arbitration (2006) version, without alteration.

In a less complex dispute, it may be possible for the arbitral tribunal to conduct the arbitration
proceedings and to decide all procedural issues solely with reference to the parties’ chosen
rules, the ICC Rules, and without reference to the applicable arbitration law. In other
situations, the interaction between the chosen Rules and the applicable arbitration law can be
of crucial importance.

One of the purposes of the Model Law was to establish “a defined core of mandatory
provisions to ensure due process”. Another was to “provide a framework for conducting an
international commercial arbitration so that in the event of the parties being unable to agree
on the procedure, the arbitration could still be completed”. 41 In other words, the provisions of
the Model Law can basically be divided into two main categories:
• Mandatory provisions which cannot be excluded in or by the parties’ agreement; and
• Default provisions which apply, unless excluded or modified by the parties’ agreement.

Default provisions can also be described as “contract-out” provisions, i.e. the parties are free
to exclude them by agreement. Occasionally, rules or legislation contain “contract-in”
provisions, which only apply if the parties so agree. Article 33(3) of the Model Law regarding
additional awards is a contract-out provision: “Unless otherwise agreed by the parties … ”. In
40 See further para 5.5 below regarding the lex arbitri.
41 See the SA Law Reform Commission’s Report (July 1998) para 2.7 and para 2.2 below.

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contrast, article 33(1)(b) on the arbitral tribunal’s power to interpret an award is a contract-in
provision, as it only applies “if so agreed by the parties”.

In most international arbitration statutes, the powers of the court are mandatory and cannot
be excluded by agreement (see however the English Arbitration Act s 69 and the Swiss Private
International Law Act article 192 for exceptions) 42. The main examples of mandatory
provisions regarding procedure in the UNCITRAL Model Law are articles 18 and 24(2) and
(3). The general procedural powers of the tribunal, in article 19, whether conferred by the
agreement of the parties (article 19(1)) or by the Model Law (article 19(2)), are subject to these
mandatory provisions. The legislature may (but does not invariably) indicate that a particular
provision is a “default provision” in the sense used above, by the inclusion of wording like
“Unless otherwise agreed by the parties”.

Some examples of interaction between the ICC Rules and the law of the seat of arbitration:

The seat of the arbitration

Assume that the parties chose the ICC Rules, but failed to specify the seat of the arbitration.
The Model Law, as its default provision, confers the power on the arbitral tribunal to determine
the seat of arbitration (article 20(1)). (Note that both the Model Law and the ICC Rules refer
to the “place of arbitration”. “Place” in this context refers to the juridical seat, which must be
distinguished from the physical location or venue of a particular meeting or hearing.) However,
the parties chose the ICC Rules, and as the parties agreed on the ICC Rules, it is the ICC
Court, under article 18(1) of the ICC Rules, that determines the seat of the arbitration. The
ICC Rules trump (override) the default provision of the Model Law.

General procedural powers

Because the parties agreed on the ICC Rules, the default procedural powers of the arbitral
tribunal under article 19 of the Model Law are subject to the tribunal’s procedural powers and
duties under the ICC Rules, particularly articles 22-27. In terms of article 19 of the ICC Rules,
the tribunal may fill gaps in the ICC Rules with reference to the default provisions of the Model
Law. The tribunal’s powers under the ICC Rules remain subject to the mandatory provisions
of the Model Law, particularly articles 18 and 24(2) and (3).

Challenging an arbitrator

Under article 13(1) of the Model Law the parties are free to agree on a challenge procedure.
As the parties agreed on the ICC Rules, the challenge procedure in article 14 of the ICC Rules
applies instead of the default provision in the Model Law, namely article 13(2). However, if
the challenge is rejected by the ICC Court, the aggrieved party is still entitled to refer the matter
to the relevant court at the place of the arbitration in terms of article 13(3) of the Model Law,
which is mandatory.

42 See however article 192(1) of the Swiss PILA, which since the 2021 amendments, provides that the right to
challenge an award tainted by criminal liability under article 190a(1)(b) cannot be waived. Note too that if the award
referred to in article 192(1) requires enforcement in Switzerland, then the New York Convention of 1958 applies by
analogy (article 192(2)). The result is that enforcement may be refused if the party resisting enforcement is able to
establish one of the grounds referred to in Article V of the NYC. These grounds are discussed in part 9.

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1.5 Differences between English (“common-law”) and “civil-law” countries’ law of

procedure
(This paragraph is based on the article by Elsing & Townsend 18 (2002) Arbitration
International 59-65.) 43

The English or common-law trial procedure can be characterised as one which emphasises
oral evidence. Traditionally, much faith was placed in cross-examination, 44 and to a lesser
extent in the demeanour of a witness as ways of testing veracity and accuracy of testimony.
As evidence was under oath, the respect traditionally attributed to the sanctity of the oath was
also regarded as being likely to encourage veracity. Written evidence also increased the
danger of fabrication. In addition, the emphasis on oral proceedings enabled the adjudicator
to control the relevance of material submitted. The stress on oral proceedings also resulted
in the English law of evidence comprising a strict system of evidence with exclusionary rules
under which evidence was inadmissible.

There are other features of English civil procedure which are not found in civil-law systems:

“The [English] common-law system involves lengthy and formally complex pleadings
[setting out the alleged facts but without any written pleading] of evidence or of
submissions of law.” 45

The “discovery of documents” as known in English and South African law of civil procedure is
fundamental to the trial procedure by compensating for the adjudicator's lack of investigative
powers. It has no counterpart in the civil procedure of Western Europe.

It is often said that the English or common-law trial consists of an adversarial system, in
contrast to the “inquisitorial system” used in Western Europe. This is an over-simplification.
France and Germany also have a basically adversarial system in civil trials, although the
adjudicator follows a more active or interventionist role by questioning the witnesses. 46 The
witnesses are however selected by the parties, resulting in a degree of party control over the
evidence presented. There is nevertheless greater use of documentary evidence and a series
of hearings rather than a single trial.

The drafters of model rules for international arbitrations endeavour to blend the best features
of common-law and civil-law systems. See for example the IBA Rules on the Taking of
Evidence in International Arbitration (2020). 47 These rules are considered in part 8, when
43 See also Park WW “Arbitration’s Protean nature: the value of rules and the risks of discretion” (2003) 19
Arbitration International 279 at 285 n 21. The article by Borris “Common law and civil law: fundamental differences
and their impact on arbitration” (1994) 60 Arbitration 78-85 is now outdated because of changes to the German
Code of Civil Procedure as from 1 January 2002.
44 The rigorous and often hostile questioning of a witness by the lawyer appearing for the opposing party.

45 See Kerr “International commercial arbitration –worldwide” in Cotran & Amissah (eds) Arbitration in Africa 15 at

24. The quotation is taken from the original conference paper.

46 See De Vos “French civil procedure revisited” (1998) 9 Stell LR 217-8, who states that in the context of civil

proceedings, the concept “inquisitorial model” refers to one in which the state has a direct interest in civil litigation
and the judge plays an investigative role to discover the truth on his own initiative. See also Klötzel T R “The right
to be heard and the right to hear: cultural dimensions of international commercial arbitration” (2006) 72 Arbitration
27 at 30: “[The proactive approach required from German judges under the Civil Proceedings Act] is not an
inquisitorial approach but an adversarial procedure as it is limited to what the parties have submitted to the tribunal
and the evidence they have proffered. Proactive does not mean inquisitorial.”
47 The IBA Rules on Taking Evidence (2010), which are prescribed for this module, can be compared to the Prague

Rules on the Efficient Conduct of Proceedings in International Arbitration of 2018. The latter rules proceed from
the premise that the IBA Rules have been over-influenced by the common law. The Prague Rules aim to give the

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ways of making the English adversarial model more efficient in a situation where the parties
and the arbitrators are from a common-law background are also investigated. 48 Articles 3 and
4, for example, contain detailed provisions on dealing with documentary evidence and
witnesses of fact and the former article was adapted already in the 2010 revision to take
account of the challenges posed by disclosure of information that is held electronically. 49 The
SHIAC Arbitration Rules of the Shanghai International Arbitration Centre in some respects
place greater emphasis on the civil-law procedural tradition, with the intention of reducing
delay. 50

The German Arbitration Law of 1998 appears to give arbitrators a freer hand regarding
evidential matters than was previously the position. 51 The French Arbitration Law, revised in
2011, gives the arbitral tribunal the express power to order the production of documents and
other evidence and to impose penalties for non-compliance. 52 Note that different legal
systems may have a fundamentally different attitude to evidence on affidavit. 53 In the context
of arbitrations, the provisions of s 14(1)(b)(v) of the 1965 South African Arbitration Act, which
now only apply in a domestic arbitration, appear unnecessarily restrictive even by English
standards. 54

*****

db/LLM ICA part 1 2025

arbitral tribunal a more interventionist role (as in civil-law jurisdictions) with a view to making the arbitral proceedings
quicker and less expensive. Whether there are actually fundamental differences between the Prague Rules and
the IBA Rules will be considered in part 8.1.
48 See further in this regard Butler (1994) 6 SA Merc LJ 251-290, which is prescribed for part 8.

49 See also the CIArb Protocol for E-disclosure in Arbitration, which is included in the material for part 8.

50 The main differences between the SHIAC Rules and the other rules prescribed for this module will be briefly

considered in part 8.1.

51 See articles 1042(4) and 1047, which are based on articles 19(2) and 24 of the UNCITRAL Model Law.

52 See the French CPC Book IV (as substituted in 2011) article 1467, third sentence.

53 See Borris’s article para 3(c) at 81-82 and see the French CPC Book IV (as substituted in 2011), article 1467,

second sentence, which provides that witnesses shall not be sworn in.
54 Compare s 34(1) and (2)(e)-(f) of the English Arbitration Act of 1996.

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