An international arbitration may look like a decisive victory, but enforcing the award can be a very different contest, especially when a court at the seat has suspended it pending a challenge. In Trencon Building World Belela Joint Venture and Another v Government of the Kingdom of Lesotho, a construction joint venture applied to the Free State High Court to have an appeal arbitration award made an order of court in South Africa. By then, however, the Lesotho High Court had stayed recognition and enforcement of the award pending review proceedings. The Free State High Court removed the application from the roll with costs, finding that pursuing enforcement in South Africa while the award remained suspended in Lesotho amounted to forum shopping and offended public policy.
The dispute arose from a health infrastructure project in Lesotho, funded under an agreement between the governments of Lesotho and the United States and implemented by the Lesotho Millennium Development Agency. A joint venture comprising Building World, Trencon Construction and Belela Construction was contracted in 2010 to renovate and construct health centres. The relationship later deteriorated over performance issues and the handling of asbestos-containing materials, and the contract was terminated in 2013. The dispute proceeded to arbitration seated in Lesotho under Lesotho law. An appeal tribunal ultimately directed the Lesotho government to pay the joint venture R69.6 million, together with interest. When the Lesotho government refused to pay and indicated that it would seek a review, the joint venture applied to the Free State High Court to have the award made an order of court under South Africa’s International Arbitration Act.
The Lesotho government raised several objections. It disputed the standing of the joint venture, the validity and scope of the arbitration agreement and award, and whether the award was binding. It also contended that the arbitration was domestic because the contract was concluded and performed in Lesotho; invoked foreign-state immunity and argued that enforcement would be contrary to South African public policy. The court rejected the contention that the arbitration was purely domestic. South African companies had participated as parties in both the initial and appeal arbitration proceedings, giving the arbitration the necessary international character, and the award qualified as a foreign arbitral award under the International Arbitration Act.
The Lesotho government also invoked foreign state immunity, but the court regarded the underlying FIDIC construction contract as an ordinary commercial transaction and noted that Lesotho had actively participated in the appeal arbitration. The decisive issue was the status of the award in Lesotho. Before the South African application was launched, Lesotho had instituted review proceedings and obtained an order staying recognition and enforcement of the arbitration award pending review.
Section 18 of the International Arbitration Act permits a South African court to refuse recognition or enforcement where an award has not yet become binding or has been set aside or suspended by a competent authority at the seat. The court was satisfied that the award had not yet become binding and remained suspended. The court held that granting enforcement in South Africa while the award was suspended in Lesotho would let the joint venture achieve here what it could not yet achieve at the seat of the arbitration, and that this amounted to impermissible forum shopping.
The judgment is a useful guide for businesses considering where and when to enforce a cross-border award. The judgment shows that a South African court may decline to recognise or enforce an award that has been suspended by a competent court at the seat, particularly where parallel enforcement proceedings would amount to forum shopping or offend South African public policy.
For businesses holding foreign arbitral awards, especially against state counterparties, the practical lesson is to assess the status of proceedings at the seat before pursuing enforcement elsewhere. Filing proceedings prematurely in a more favourable forum risks a refusal on public policy grounds and can cost valuable time.
This bulletin was authored by Partner, Jesicca Rajpal and Associate Designate, Revinia Van Schalkwyk.
