The Arbitration Act Number 42 of 1965 (“Arbitration Act”) regulates arbitrations stemming from a written agreement. This is not new law and many contracts have arbitration clauses. The New York Times reported that a financial company in the United States of America (“USA”) inserted the words “[you or we] may elect to resolve any claim by individual arbitration” into its contracts with clients.

This inconspicuous clause is the subject of the New York Times article in which class actions are used against corporations. Essentially, a class action is a group of people who have been wronged and sue a particular party under a common name or class of people. In South Africa, the Supreme Court of Appeal allowed for class actions to be used in South Africa as reasoned in the judgment of The Trustees for the time being of the Children Resource Centre Trust and Others v Pioneer Food (Pty) Ltd 2013 (2) SA 213 (SCA). The clause in question is a good example of essentially denying people who have suffered a wrong in common from forming a class to litigate against the company.

The example in the article was that of a lady who was challenging a $600 (approximately R8300) cancellation fee for a telephone service. Approximately 900 people in three states in the USA were fighting the telephone company on the same basis. However, the arbitration clause denied them the use of a class action as the company opted to settle the matter by individual arbitration. The result was that the customer was forced to abandon her challenge and pay the $600 as arbitration would have simply cost far more than paying the cancellation fee.

Furthermore, the investigation by the New York Times revealed that judges in the USA upheld class-action bans in 134 out of 162 cases in 2014. In South Africa, the Arbitration Act also allows for any party to an arbitration agreement to apply to court to stay the legal proceedings brought against it, if there was an arbitration agreement in place. In an instance of an arbitration clause in an agreement, the judge in South Africa would likely stay the legal proceedings subject to terms and conditions it may consider just in terms of section 6(2) of the Arbitration Act.

It is also unknown how many arbitrations are successful against companies as there are no registers or records of the proceedings. This is also true in South Africa where the record is private and not available to the public as a court record would normally be. It therefore is unknown as to the success rate of people challenging companies in an arbitration and also how many people simply abandon their challenge upon arbitration. If the arbitration found in favour of the company, the consumer would find it difficult to challenge the matter in court as arbitration brings finality to the matter.

This is extremely relevant in South Africa as in some point in our daily transactions, we all have had experiences similar to those anecdotes in the report by the New York Times. It is far too easy for consumers to pay the couple hundred rand in penalties / cancellation fees because the amount is so small relative to the irritation and expense that it causes to rectify the wrong. The effect is that those large corporations are able to engage in somewhat abusive behaviour without much accountability. To use the American statistics, a telephone company with 125 million subscribers faced 65 arbitrations from 2010 to 2014 and a television company with 15 million customers faced 7 arbitrations. 

Indeed, there is legislation and authorities in South Africa that protect against some of this behaviour. However, we are not concerned by giving companies fines for their abuses or less than acceptable behaviour; we are concerned about receiving actual monetary reward / reimbursement for losses suffered. The use of a class action against a major corporation can be used to stop or at the very least curb practices that occur in the USA. In South Africa, the use of the class action has not yet gained the traction and popularity it enjoys in the USA but perhaps it should be used as a tool to hold large corporations liable. In the same vein, one should be careful in signing agreements with an arbitration clause that does not require mutual consent.

Submitted by Kirith Haria Attorneys