The African mining industry is increasingly turning to alternative dispute resolution (ADR) processes such as arbitration to solve mining disagreements on the continent, explained Wessel Badenhorst, a partner at Hogan Lovells in Johannesburg. “There is a general trend to speed up dispute resolution,” said Badenhorst. “When you’re dealing with mining projects and you’re bogged down in a dispute, that’s very problematic.” Mining companies also want to reduce costs and use ADR to avoid lengthy and expensive litigation in court.

Arbitrations tend to work well for commercial disagreements when there is a limited factual dispute and a legal interpretation of a contract required. However, they only work well if there are two willing parties. If a commercial contract doesn’t have a good arbitration foundation, then it can be difficult to proceed if a defendant is not cooperative, Badenhorst says. By contrast, if the contract does have a good arbitration foundation, then a recalcitrant defendant can be brought to the table much faster, he noted. Ensuring parties can agree to limit the issues that the arbitrator considers is also a key to making them work well.

Badenhorst believes companies should approach disputes by considering their strategic importance to the business and what commercial outcome they are looking to achieve.

On one occasion he used arbitration to help close a transaction during a mining business rescue. As long as the company stayed in business rescue, it was incurring monthly costs that reduced the money available to creditors. Acting for the seller, Badenhorst wanted to close the transaction as quickly as possible, but a dispute arose about whether removing certain materials from sites resulted in value destruction.

“To resolve that issue, we agreed that a portion of the purchase price would be retained in escrow,” explained Badenhorst. That negotiated solution enabled the transaction to close and for the parties to then arbitrate afterwards over this particular issue.

“Arbitration worked extremely well there because it was a very limited issue with a single witness, and the rest of it was legal argument,” he said. “But you have to understand what commercial outcome you are seeking to achieve and then understand how the litigation set of tools will help you.”

While arbitrations have traditionally tended to sit in London, Badenhorst says South Africa has a potential competitive advantage to become a leading seat of arbitration for African mining disputes. First, South Africa has a high calibre of domestic lawyers. Second, English is an official language, putting it on par with London. Third, the country has high-quality infrastructure, and fourth, its geographical location can also compete with London given its time zone which allows it to deal with East and West in a single day.

“That doesn’t mean that the arbitration would be dealt with under our arbitration laws or our arbitration processes,” clarified Badenhorst. “I worked on a case recently where we were arbitrating under English law, in relation to a contract dealing with a dispute in Ethiopia, but the procedure we followed was the South African procedural process.”

Badenhorst says mining companies and their commercial lawyers need to consider these options when concluding their contracts. “That means thinking carefully upfront about what types of disputes might arise, the best way of resolving them, and agreeing on a seat of arbitration that best suits the circumstances.”

He highlighted that South Africa also has an opportunity to lead the way on technology and allow for virtual arbitrations, or at least a hybrid system between online and in-person proceedings, which has a positive impact on the costs of arbitrations.

“Something that would previously have taken three weeks could potentially be resolved in three days,” he said. “You want mining disputes resolved quickly because often you still have an ongoing relationship – the last thing you want is a big drawn-out boxing match. That is why it is very important how you design the process in the first place.”

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