Emerging arbitration jurisdictions often face challenges in establishing themselves as credible and reliable seats for international arbitration with a key focus on achieving minimal judicial intervention. This however presents somewhat of a contradiction because the attitude of the court will generally only be evidenced through its published judgments.
This is why, when courts are involved, their decisions must be clear, consistent, and aligned with international best practice. In Industrial Development Corporation of South Africa Limited and Another v Kalagadi Manganese (Pty) Ltd, the Supreme Court of Appeal ("SCA") delivered a decisive judgment that reinforced the binding nature of arbitration agreements and underscored South Africa's adherence to international arbitration principles.
The SCA confirmed that arbitration agreements, particularly in the context of international commercial disputes, are binding and must be respected by the courts. At issue was Kalagadi's default on over R 6 billion in loans, prompting the Industrial Development Corporation ("IDC") to initiate business rescue proceedings against Kalagadi. Kalagadi countered with an application to restructure its debt and block enforcement of security rights. Although the High Court ordered a joint hearing, it declined to consolidate the matters, acknowledging their distinct legal bases.
The High Court dismissed preliminary objections raised by the IDC and the African Development Bank, including arguments based on the enforcement of a mandatory arbitration clause. It held that the presence of overlapping issues and the constitutional right of access to the courts justified bypassing the arbitration agreement and proceeding with litigation. On appeal, the SCA disagreed with the High Court and overturned its decision.
The SCA, applying settled principles of contractual interpretation, found that the arbitration clause was mandatory. The use of the word "shall" left no room for court-discretion. The clause extended to all disputes arising under the agreement and, due to the cross-border nature of the parties and the designated seat of arbitration being London, meant that the International Arbitration Act 15 of 2017 ("IAA") applied.
South Africa's arbitration framework strongly upholds the enforceability of arbitration agreements. Under Section 3 of the domestic Arbitration Act, courts may only set aside such agreements where 'good cause' is shown, and Section 6 allows a party to seek a stay of court proceedings in favour of arbitration. In these cases, the burden lies with the party seeking to avoid arbitration to justify why the agreement should not be enforced. This provision has received criticism due to a lack of alignment with international best practice.
The IAA, in contrast, adopts a more robust and internationally aligned approach. Article 8 of Schedule 1 to the IAA goes further than Section 3 of the Domestic Act and requires courts to stay proceedings and refer disputes to arbitration unless the agreement is "null and void, inoperative or incapable of being performed."
This distinction between the discretionary language of the Domestic Arbitration Act and the mandatory language of the IAA is critical. The SCA in the Kalagadi judgment underscored this point, holding that under Article 8(1) of Schedule 1 to the IAA, courts are obliged to refer disputes to arbitration unless one of the narrow exceptions applies. The SCA found that the High Court had erred in relying on the outdated test found in Section 3 of the Domestic Arbitration Act, which no longer governs international arbitration matters. Importantly, the SCA also clarified that courts have a duty to apply the correct legal framework, even where the parties themselves fail to raise it, reinforcing the judiciary's role in upholding the integrity of arbitration agreements in line with international standards.
On the business rescue front, the SCA made it clear: parallel proceedings do not override arbitration agreements. Each application must be assessed on its own legal footing, and factual overlap is not a license for judicial interference to bypass an arbitration agreement. The SCA also reaffirmed that where parties have voluntarily chosen arbitration, courts must respect that decision—even if it means foregoing their constitutional right of access to the courts.
Kalagadi's argument that the IDC, as a public entity, lacked the authority to enter into arbitration agreements was rejected. The SCA confirmed that public bodies regularly engage in arbitration and that Section 5 of the International Arbitration Act expressly permits such agreements in international commercial matters. This clarification is timely and reflects a growing continental trend. At the recent ICCA–KIAC Conference in Kigali, particular emphasis was placed on the need for governments and other public entities to honour arbitration agreements they have entered into, reinforcing the principle that public bodies must be held to the same standard of accountability as private parties.
The SCA's ruling adds to a growing body of case law affirming South Africa's strong pro-arbitration stance and its commitment to limiting judicial interference in arbitral proceedings. It also highlights the courts' active engagement with the International Arbitration Act, applying it in line with international best practices and the principles of the UNCITRAL Model Law. For businesses, the message is clear: arbitration clauses are binding and must be taken seriously. As Africa continues to position itself as a global arbitration hub, companies should ensure their contracts are well-drafted, arbitration-ready, and legally robust.
The significance of the Kalagadi judgment lies not only in its affirmation of South Africa's pro-arbitration stance but also in its broader implications for legal certainty and investor confidence. By firmly applying the IAA and rejecting outdated domestic law principles, the SCA has sent a clear signal that South Africa is serious about aligning with international best practice. This clarity is especially critical for cross-border commercial parties who rely on the predictability and enforceability of arbitration agreements. In a region where emerging jurisdictions are striving to establish themselves as credible arbitration seats, such jurisprudence strengthens South Africa's position as a leading arbitration seat on the continent—one where courts respect party autonomy and uphold the rule of law in arbitration.
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