Zhongji Development Construction Engineering Company Limited v Kamoto Copper Company SARL

Zhongji Construction, a Chinese company, was awarded a tender by DRC Copper and Cobalt Project SARL (DCP), a Congolese company, for piling and civil works at a mining site in the Democratic Republic of Congo. The parties concluded an interim agreement on 30 January 2008 and a main agreement on 20 August 2008. The main agreement contained an arbitration clause providing for arbitration in Gauteng under the Rules of the Association of Arbitrators (Southern Africa) and the Arbitration Act 42 of 1965, governed by English law. The interim agreement contained no dispute resolution clause. DCP terminated the main agreement in December 2008. Zhongji submitted several unpaid invoices totalling approximately US$2.5 million under the interim agreement and claims under the main agreement totalling approximately US$8.4 million. DCP and Kamoto Copper Company SARL (Kamoto), another Congolese company, concluded a merger agreement on 25 July 2009, authorised by Presidential decree on 27 April 2010, whereby DCP was dissolved and Kamoto assumed all of DCP's assets, liabilities, rights and obligations. Zhongji sought declaratory relief from the South Gauteng High Court that the disputes were arbitrable and that Kamoto was bound by the arbitration agreement in the main agreement. Both parties were peregrini of South Africa, the agreements were concluded and performed outside South Africa, and no attachment was made to found jurisdiction.

• Whether the High Court had jurisdiction to grant declaratory relief in circumstances where both parties were peregrini and the agreements were concluded and performed outside South Africa
• Whether the arbitration clause in the main agreement bound Kamoto following the merger with DCP
• Whether disputes arising from the interim agreement (which contained no arbitration clause) fell within the scope of the arbitration clause in the main agreement
• Whether it was appropriate for a court to grant declaratory relief on issues of arbitrability and the scope of arbitration before the arbitration process had commenced
• Whether the arbitrator had the power (competence-competence) to determine its own jurisdiction

The appeal was dismissed. No order as to costs on appeal was made, as both parties had treated the matter primarily as one involving jurisdiction, and on that point Kamoto had failed despite succeeding overall.

Where parties have agreed to resolve disputes by arbitration and the arbitration rules provide that the arbitrator may determine disputes regarding the existence, validity or interpretation of the arbitration agreement and rule on its own jurisdiction (competence-competence), courts should not grant declaratory relief on these issues before the arbitration has commenced or run its course. An application for declaratory relief regarding arbitrability and the scope of an arbitration agreement is premature when the very issues on which judicial pronouncement is sought fall to be dealt with by the arbitration tribunal under the agreed arbitration rules. The arbitration clause is a distinct agreement from the main contract in which it is incorporated, and courts must give effect to arbitration agreements in accordance with their terms, respecting party autonomy. Courts have jurisdiction in relation to arbitrations seated within their territorial jurisdiction but their powers are circumscribed by the need to defer to the arbitration process and avoid undermining the goals of private arbitration through imprudent enlargement of judicial scrutiny.

Willis JA observed that South African courts have both a legal and a socio-economic duty to encourage the selection of South Africa as a venue for international arbitrations, which fosters international comity, trade, and brings foreign spending into the country. He noted that international arbitration agreements should be liberally construed, with a presumption that rational businessmen intend disputes arising from their relationship to be decided by the same tribunal, and that arbitration clauses should be construed to cover all disputes unless clear language excludes certain questions. He also noted that Kamoto came perilously close to infringing Zhongji's right to arbitration under the main agreement. Gorven AJA observed that the supreme irony of the application was that Zhongji, in ostensibly seeking to enforce the arbitration clause, in effect sought to have the court act contrary to some of the terms of the agreement it invoked. He emphasized that if courts arrogate to themselves the right to decide matters which parties have agreed should be dealt with by arbitration, the likelihood of South Africa being chosen as an international arbitration venue would be remote in the extreme. Both judges made observations about the confusion in Kamoto's position as articulated in its answering affidavit and in correspondence, which contributed to the decision not to award costs against Zhongji on appeal.

This case is significant in South African arbitration law for affirming the principle of competence-competence (the power of arbitrators to determine their own jurisdiction) and emphasizing judicial restraint in matters involving arbitration agreements. It reinforces South Africa's alignment with international best practice in arbitration, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The judgment underscores that courts should not intervene prematurely in arbitration matters and should respect party autonomy in choosing arbitration as their dispute resolution mechanism. It clarifies that while courts may have jurisdiction over arbitration-related matters (particularly when the seat of arbitration is within the court's territorial jurisdiction), their powers are circumscribed by the need to give effect to arbitration agreements and the competence-competence principle. The case is important for promoting South Africa as a viable international arbitration venue and demonstrates the courts' commitment to supporting international commercial arbitration by avoiding unnecessary judicial interference.