High Court of South Africa decisively dismisses public policy challenge to the recognition of a foreign arbitral award

On 24 August 2023, the Gauteng Division of the High Court dismissed an application for leave to appeal a court order recognising and enforcing a foreign arbitral award under South Africa's International Arbitration Act 15 of 2017 (the "IAA") and instead held that order continued to be operational and executable in full (GFE MIR Alloys and Minerals SA (Pty) Ltd v Momoco International Limited [2023] ZAGPJHC 946 (24 August 2023)).

In its judgment, the High Court takes a robust view in support of the recognition and enforcement of arbitral awards in the face of dilatory and speculative challenges, and expressly acknowledges the all-important public policy considerations and constitutional imperatives underlying such recognition and enforcement.

Background

In 2020, Momoco International Limited ("Momoco") obtained an arbitral award (in proceedings conducted under the rules of the China International Economic and Trade Arbitration Commission (CIETAC) by a tribunal seated in Beijing) requiring payment of substantial sums by GFE-MIR Alloys and Minerals SA (Pty) Ltd ("GFE") for goods supplied to, but not paid for by, GFE. When GFE failed to comply with that award, Momoco applied to the High Court for the recognition and enforcement of the foreign arbitral award in South Africa under s.16 of the IAA. In response, GFE argued that Momoco was guilty of tax evasion in the United Kingdom and sought to resist recognition and enforcement of the award as contrary to public policy under s.18 of the IAA.

The High Court considered that GFE had not proven the alleged illegality, and in any event held that the allegation was irrelevant to the application before it: tax evasion in the UK is a matter for the UK authorities. Further, the issue had been argued before (and dismissed by) the arbitral tribunal – meaning the court was required to give a "high degree of deference" to the tribunal's decision, "which is a worldwide tradition". Accordingly, the High Court held that GFE had not shown that enforcement of the arbitral award would be against public policy and declared that the arbitral award is made an order of court pursuant to the IAA (Momoco International Limited v GFE-MIR Alloys and Minerals SA (Pty) Ltd [2023] ZAGPJHC 764 (2 June 2023)).

Subsequently, GFE applied for leave to appeal the order recognising the foreign arbitral award (which, in South Africa, is appealable on the ordinary principles). Momoco applied for a declaration that the order remained operational and executable in full, regardless of GFE's application for leave to appeal.

Decision

The Gauteng Division of the High Court (Mudau J) dismissed GFE's application for leave to appeal and granted Momoco's application for continued operation of the order recognising the arbitral award.

First, the court rejected GFE's argument that Momoco had the onus of establishing that recognition of the award would not be against public policy. Pursuant to the IAA, foreign arbitral awards are prima facie enforceable, and GFE's tax evasion defence was considered and dismissed by the tribunal in the arbitration proceedings and by the court in its previous decision. Where a party seeks to avoid contractual consequences on the basis that they are contrary to public policy, that party bears the burden of proof. GFE had not met that burden. Because the appeal thus had no reasonable prospect of success and there was no other compelling reason why an appeal should be heard, the application was dismissed.

Second, the court declared that the order recognising the foreign arbitral award continued to operate. According to s.18 of the Superior Courts Act 10 of 2013, and subject to the courts power to order otherwise, a pending application for leave to appeal ordinarily suspends the relevant court order. In the circumstances, the court considered that permitting "GFE to delay its obligation to pay the judgment debt on its terms is an abuse the process of court and would be contrary to public policy and the scope and purpose" of the IAA, and therefore declared that the order recognising the foreign arbitral award continued to operate.

Comment

In coming to its decision, the High Court adopted a robust pro-arbitration approach: mere unproven allegations of tax evasion in another jurisdiction, already dismissed in the arbitration, were clearly insufficient to overturn recognition and enforcement of the foreign arbitral award. Beyond its decision – which was unsurprising on the facts before it – the language used by the court in its judgment is illustrative. According to Mudau J, the IAA "ensures that foreign arbitral awards will be recognised and enforced by countries who are parties to the [New York] Convention, thus recognising an effective dispute resolution process of international commercial disputes…there is also an overriding public policy consideration that the courts of South Africa enforce and recognise foreign arbitral awards, save in the circumstances provided for in the [IAA]. As informed by the Constitution and its values, public policy also demands that arbitration awards, which give effect to arbitration agreements should generally be enforced by our courts."

As a result, the case is a clear recognition of South Africa's obligations as a signatory of the New York Convention. It also provides an indication that the South African courts may interpret the public policy exception in the IAA narrowly, and thus adopt a hands-off approach to challenges to the recognition and enforcement of foreign awards and applications to set aside arbitral awards issued in South Africa.

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