Arbitration is a form of alternative dispute resolution; a technique for the resolution of disputes outside the courts. Litigation is often associated with an oversupply of disputes and an undersupply of resources to cope with the volume of such disputes.
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. The parties to the dispute choose their arbitrator, or can request organisations such as the Arbitration Foundation of Southern Africa (AFSA) or the Association of Arbitrators (South Africa) (AASA), to appoint a suitable and qualified person. The agreement usually determines the procedure for appointing an arbitrator.
Arbitrations in South Africa are governed by the Arbitration Act 42 of 1965 (hereinafter “the Act”). However, in order for the Act to be enforceable, the parties must record their agreement in writing to arbitrate any existing dispute or any future dispute relating to a matter specified in their agreement.
The dispute is heard privately at a time and place that is agreed upon by all parties and they choose a system that promises a fair and private resolution in circumstances most suited to their needs. Furthermore, parties have the security of an administered system with carefully drafted Rules for Arbitration.
Main characteristics of Arbitration
1. Arbitration is consensual
As already stated, arbitration can only take place if both parties have agreed to it. Parties can agree to arbitration when the dispute arise or the parties can insert an arbitration clause in the relevant contract for any future disputes. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
2. The parties choose the arbitrator/s
The parties can select a sole arbitrator together or the can request that the AFSA or AASA suggest potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal.
3. Arbitration is neutral
The Act makes no distinction between domestic and international arbitrations. This means the parties are able to choose such important elements as the applicable law, language and venue of the arbitration. This allows them to ensure that no party enjoys a so-called “home court advantage”.
4. Arbitration is a confidential procedure
The Rules specifically protect the confidentiality of the existence of the arbitration, any disclosures made during that procedure and the award.
However, should the arbitration be made an order of court, as is the case with many commercial arbitrations, the order becomes public record.
5. The decision of the arbitrator is final
The arbitration award can also be made an order of the court, in order to enforce compliance with the award made during arbitration. This award, will then have equal standing in law as a court order.
Agreeing to arbitration
The parties need to enter into a written agreement agreeing to arbitration. This agreement should:
- properly define the dispute to be arbitrated
- stipulate the powers and jurisdiction of the arbitrator
- agree who the arbitrator is to be (or how he/she will be appointed, or which organisation will appoint an arbitrator if no agreement can be reached)
- where the arbitration is to be held
- the procedures and/or rules to be followed
- the determination of costs and the assessment thereof
- whether there is to be an appeal process
- the confidentiality of the proceedings
The key here is to ensure that the terms of the arbitration clause or agreement are carefully drafted to facilitate the conduct of the arbitration in an expeditious and cost effective manner and to make it difficult for a recalcitrant party from seeking court interference in the arbitration process.
Advantages of referring disputes for arbitration
- An appropriately experienced person adjudicating the dispute
- faster determination of the dispute
- agreeing on procedures and time periods for submitting documents to avoid lengthy and unnecessary delays
- confidentiality with respect to the dispute which is not the case in court where disputes are a matter of public record
- agreeing on whether the arbitrator’s decision is final or subject to appeal - court decisions may always be taken on appeal.
When is arbitration not appropriate
Matters that in normal circumstances cannot be arbitrated are divorces, criminal matters, issues of status (e.g. determining a person's mental state or sequestration) or the liquidation of a company.
The AFSA or AASA can only arbitrate a matter when parties have agreed to refer their matter to arbitration. In other words, if an agreement between parties does not have an arbitration clause referring the parties to AFSA, then AFSA cannot administer the matter until the parties have agreed to do so. The parties can sign an Agreement to Arbitrate, thereby binding themselves to an AFSA arbitration.
Arbitration is normally seen to be more costly than court proceedings as the costs of the venue, the arbitrator and the recording of the proceedings are borne by the parties. However, considering that the procedures are stipulated and the arbitrator’s powers defined, resolution of disputes by arbitration can be conducted conveniently and expeditiously. This avoids unnecessary delays, procedural risks and costs associated with litigation.
Arbitration is a cost effective, expeditious and preferred mechanism for resolving commercial and often construction disputes.
Written by Arinda Truter, Junior Associate, Attorney, Notary & Conveyancer, SchoemanLaw Inc.