The Industrial Development Corporation (IDC) and African Development Bank (AfDB) provided loan facilities exceeding R6 billion to Kalagadi Manganese (Pty) Ltd pursuant to a Common Terms Agreement concluded on 4 September 2017. The agreement provided for arbitration in London under ICC Rules, with English law as the substantive law. Kalagadi defaulted on its debt obligations, and the applicants issued notices of default accelerating the debt. The IDC instituted business rescue proceedings on 29 April 2020, which were struck from the roll for want of urgency. Kalagadi and related entities then brought an application in the high court seeking to compel the applicants to accept a debt restructuring arrangement and to interdict them from exercising their security rights. The applicants raised preliminary objections to the high court's jurisdiction based on: (a) an arbitration clause in the Common Terms Agreement requiring disputes to be resolved through arbitration in London; (b) failure to follow expert determination processes prescribed in the agreement; and (c) AfDB's immunity from legal process under the AfDB Parent Agreement and the Diplomatic Privileges and Immunities Act 37 of 2001. The high court dismissed the preliminary objections, and the applicants sought leave to appeal.
1. The application for leave to appeal is granted with costs including those of two counsel where so employed. 2. The appeal is upheld with costs including those of two counsel where so employed. 3. The order of the high court is set aside and replaced with the following order: '1. The application is stayed as against Kalagadi Manganese (Pty) Ltd (Kalagadi Manganese), pending the final determination of the arbitration proceedings in terms of clause 40.2.1 of the Common Terms Agreement. 2. Kalagadi Manganese is ordered to pay the costs of the application including those of two counsel.'
1. An international arbitration agreement, as defined in the International Arbitration Act 15 of 2017, is governed by that Act and not by the Arbitration Act 42 of 1965. An arbitration is international if the parties have their places of business in different states or the place of arbitration is different from the state where the parties have their places of business. 2. In terms of article 8(1) of Schedule 1 to the IAA, a court before which proceedings are brought in a matter which is the subject of an arbitration agreement must stay those proceedings and refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of being performed. 3. A peremptory arbitration clause using the word 'shall' and providing that 'any dispute arising out of or in connection with' an agreement must be referred to arbitration ousts the jurisdiction of courts to determine such disputes. 4. The immunity of international organizations such as the African Development Bank from legal process, as conferred under international agreements and recognized by the Minister under sections 5(3) and 7(1) of the Diplomatic Privileges and Immunities Act 37 of 2001, is valid and enforceable in South African law without requiring separate parliamentary ratification under section 231(2) of the Constitution. 5. Overlapping issues between court proceedings and arbitrable disputes, or the existence of related business rescue proceedings, do not justify a court assuming jurisdiction over disputes that fall within a peremptory arbitration clause. 6. Public bodies may validly enter into binding international arbitration agreements in commercial transactions, and such agreements do not contravene their constitutional or statutory obligations.
The Court observed that parties to guarantee agreements who are not parties to the main agreement containing the arbitration clause (in this case Kalahari Resources and Kgalagadi Alloys) are not required to wait for guarantees to be called up before seeking interdictory relief in court under those separate guarantee agreements. A referral to arbitration of interdictory relief sought in relation to the guarantee agreements would deny them the right to seek such relief in the high court to interdict the enforcement of security rights under those agreements. However, the Court emphasized that the security arrangements under the guarantee agreements have no bearing on the enforceability of the peremptory arbitration clause as between Kalagadi and the applicants. The Court also noted that public bodies routinely enter into arbitration agreements and participate in arbitrations in South Africa, and that section 5 of the IAA expressly recognizes the binding nature of arbitration agreements on public bodies in international commercial arbitrations. The Court did not consider the preliminary objection concerning clause 38 of the Common Terms Agreement (expert determination) in view of its conclusion on the arbitration clause.
This case is significant for establishing important principles regarding international arbitration agreements in South African law. It clarifies the application of the International Arbitration Act 15 of 2017 and the stringent test that courts must apply when parties seek to avoid arbitration agreements. The judgment emphasizes the importance of respecting party autonomy in concluding arbitration agreements and minimizing judicial interference in the arbitration process. The case also provides important guidance on the recognition and enforcement of immunities conferred on international organizations through the Diplomatic Privileges and Immunities Act 37 of 2001, clarifying that such immunities do not require separate parliamentary ratification under section 231(2) of the Constitution when incorporated through enabling legislation. The judgment reinforces that peremptory arbitration clauses in international commercial agreements will be enforced strictly, and that overlapping court proceedings or business rescue applications do not justify bypassing such clauses. The case also confirms that public bodies such as the IDC may validly enter into binding arbitration agreements in international commercial transactions.
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