27 February 2023
SOUTH AFRICAN COURT’S TREATMENT OF FRAZER SOLAR CASE ‘TROUBLING’
Frazer Solar GmbH (FSG) wishes to draw attention to the article written by Vincent Manko director of South African law firm Cliffe Dekker Hofmeyer (CDH) in the October 2022 edition of their bulletin International Dispute Resolution in Africa titled ‘A Disjointed Approach to the Enforcement of Arbitral Awards.’ This article discusses the FSG case and in particular the May 2022 South African court ruling to indefinitely postpone the Government of Lesotho’s rescission application of the arbitration award.
Mr Manko and CDH are not involved in the case, so their views are objective and impartial, and as such are beneficial for those wishing to understand the intricacies of the matter in more detail.
In January 2020, an independent arbitrator ruled in FSG’s favour concerning a series of contractual breaches committed by the Kingdom of Lesotho, related to a renewable energy project developed by the company. Lesotho was ordered to pay Frazer Solar €50 million in damages but failed to do so.
Consequently, in May 2021, Frazer Solar’s lawyers commenced a worldwide enforcement action against assets held by the Kingdom including payments relating to the sale of water from Lesotho to South Africa.
Lesotho launched a three-prong response to the asset seizures being: a review application to the Lesotho High Court to have the original supply agreement set aside; a rescission application to the South African High Court to rescind the court order to allow the asset seizures and set aside the arbitral award; and an application to the south African High Court to stay the asset seizures until the Lesotho review and South African rescission applications had been determined.
The three applications were due to be heard on 22 May 2022. However, just prior to the hearing Lesotho sought an indefinite postponement of the South African proceedings pending determination of the Lesotho review application. In simple terms; Lesotho argued that if the agreement was nullified, then there would be no arbitration clause and therefore no arbitration award and therefore no basis on which FSG could seize Lesotho’s assets; therefore the South African court should wait until the Lesotho court made a ruling on the issue. FSG argued that a country is bound by its own laws and is not subservient to other countries. Therefore, South Africa should not defer to Lesotho on a matter related to South African law. The Court ruled in Lesotho’s favour and the South African proceedings were postponed.
Mr Manko explains that the Court based its decision on two findings: if the supply agreement was nullified it would nullify everything; and that giving the Lesotho court the opportunity to review the agreement would be in the interests of South African public policy. Importantly, Mr Manko correctly points out that the Court cited no authorities for either of these findings. He states that the decision is ‘troubling’ and could ‘potentially undermine South Africa’s efforts to establish itself as a regional hub for international arbitration.’
Mr Manko identifies four ‘troubling’ issues with the decision:
It is ‘worrisome’ that a South African court would not consider international law, to which South Africa is bound.
Even ‘more troubling’ is that a South African court would not consider South African law. He states ‘the South African court could not permissibly defer its determination to the Lesotho courts.’
Even if the Lesotho court does set aside the arbitration award, at best, it is just a single factor to consider and is not decisive in itself.
‘More importantly’ the International Arbitration Act, the New York Convention and the Model Law were relevant but not considered.
Mr Manko concludes by stating the decision will ‘most likely be overturned’ in future.
Frazer Solar Comments
A spokesperson for FSG said “We agree completely with Mr Manko that the South African court’s decision was indeed ‘troubling’ and did not adequately consider South Africa’s obligations under its own and international laws.”
The postponed proceedings have been rescheduled for the week commencing 5 June 2023.
To download a PDF copy of Mr Manko's article click here.
Notes to Editors
In January 2020, an independent arbitrator ruled in Frazer Solar’s favour concerning a series of contractual breaches committed by the Kingdom of Lesotho, related to a renewable energy project developed by the company. Lesotho was ordered to pay Frazer Solar €50 million in damages but failed to do so.
Consequently, in May 2021, Frazer Solar’s lawyers commenced a worldwide enforcement action against assets held by the Kingdom.