Frazer Solar GmbH v. Kingdom of Lesotho
Association of Arbitrators (Southern Africa) NPC · Investment (ICSID and treaty) · South Africa · 28 Jan 2020
Why it matters
This case illustrates the application of South Africa's International Arbitration Act to a commercial arbitration involving a foreign investor and a sovereign state, where the contract mistakenly referred to the domestic Arbitration Act. The tribunal's reasoning on jurisdiction and the choice of law for international arbitration is instructive for practitioners dealing with similar drafting errors. It also shows the enforcement of liquidated damages clauses in state contracts.
Summary
Frazer Solar GmbH, a German company, entered into a Supply Agreement with the Kingdom of Lesotho in September 2018 to install solar water heaters and LED lights in government buildings, funded by a €100 million German export credit loan. The agreement was governed by South African law with arbitration in Johannesburg under the Association of Arbitrators (Southern Africa) Rules. After Lesotho failed to perform its obligations, Frazer Solar initiated arbitration. Lesotho did not participate. The tribunal had to determine its jurisdiction, noting that the contract referred to the domestic Arbitration Act 1965, but the dispute was international. Applying the International Arbitration Act 2017, the tribunal found it had jurisdiction. On the merits, the tribunal found Lesotho breached several warranties and failed to facilitate the project. However, the claim for breach of a 'first opportunity' clause for future projects was dismissed as too vague. The tribunal awarded €50 million in liquidated damages as per the contract, plus pre-award interest of €754,273 and post-award interest at 1.7% per annum, and costs. The award was made in euros.
The detail
Parties: Frazer Solar GmbH v. Kingdom of Lesotho
Case number: italaw/cases/10174
Outcome: The tribunal awarded the claimant €50 million in liquidated damages plus pre-award interest of €754,273 and post-award interest at 1.7% per annum, and costs of the arbitration.
Quantum: €50,754,273 (including pre-award interest)
Applicable law: Supply Agreement governed by South African law; arbitration under Association of Arbitrators (Southern Africa) NPC Rules (2018 edition) and the International Arbitration Act, 15 of 2017 (South Africa).
Issues in play: The main legal issue was whether the arbitration was governed by the South African Arbitration Act 42 of 1965 or the International Arbitration Act 15 of 2017. The tribunal held that the International Arbitration Act applied because the dispute was international and the seat was Johannesburg, despite the contract's reference to the 1965 Act.
Read the full decision at italaw ↗
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