Is Arbitration a preferred method of dispute resolution in South Africa?

Arbitration is one of the dispute resolution mechanisms used as an alternative to resolving disputes through the court system.  Litigation through the courts is often beleaguered with an oversupply of disputes to be aired, and an undersupply of resources to cope with the volume of such disputes within timeframes that provide businesses with a platform for expeditious hearing and resolution.

Whether arbitration as an alternate dispute resolution mechanism remains advantageous to parties who elect to agree to arbitration in South Africa in the context of changes in international legislation is a matter for debate.

 

Brief Background to Arbitration

Arbitrations in South Africa are governed by the Arbitration Act 42 of 1965 (“the Arbitration Act”).  In order 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 Arbitration Act makes no distinction between domestic and international arbitrations.

The globalisation of international trade and increased cross‑border commercial disputes and the preference to resolve such disputes by arbitration, led in 1985 to the recommendations of the United Nations Commission on International Trade Law being adopted by many countries (commonly known as the UNCITRAL Model Law). Of the approximately 135 countries that have adopted the UNCITRAL Model Law, African countries that have ratified or acceded to the Model Law through domestic legislation include Egypt, Kenya, Madagascar, Mauritius, Nigeria, Tunisia, Zambia and Zimbabwe.

Status of Arbitration in South Africa

The South African Law Commission (now the South African Law Reform Commission) first proposed South Africa’s recommended response to the UNCITRAL Model Law some 15 years ago and presented a draft bill for international arbitration.

In May 2001 the Law Commission proposed a new statute for domestic arbitration.
Despite widespread support for the implementation of the Law Commission’s recommendations, Government is yet to implement changes to the Arbitration Act. As such, South Africa remains behind the rest of the world (including African countries like Mauritius) and fails to establish itself as an international arbitration centre. In such circumstances parties wishing to have disputes internationally arbitrated generally choose to arbitrate such disputes in other jurisdictions.

The current Arbitration Act does not stipulate default rules regarding procedure, permits a recalcitrant party the opportunity to try and delay the arbitral proceedings by exploiting the provisions that permit court intervention in such proceedings, which may lead to costly and frustrating delays.

The recommendations of the Law Commission seek to address these issues by increased powers of the arbitrator aimed at speeding up the process and making it more cost effective, which is in line with international practice.

Although the Arbitration Act has certain shortcomings and is outdated, the advantages of the determination of commercial disputes is accepted and recognised by legal practitioners and the business community of South Africa, which is evidenced by the rapid growth of arbitration as a forum for dispute resolution.

Informed Choice

Many of the shortcomings and issues arising from the the Arbitration Act can be addressed in a written agreement concluded between the parties agreeing to arbitration by properly defining the dispute to be arbitrated, stipulating the powers and jurisdiction of the arbitrator, agreeing who the arbitrator is to be (or how he will be appointed) 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 and the confidentiality of the proceedings.

The key 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 so as to make it difficult for a recalcitrant party from seeking court interference in the arbitration process.

Provided an arbitration agreement is prepared to address the above issues and the arbitration process is properly administered, there are significant advantages of referring disputes for determination by way of arbitration which include: –

  • have an appropriately experienced person adjudicate the dispute;
  • a faster determination of the dispute  from the date of institution of proceedings to trial date. The parties can choose the date for hearing as opposed to waiting for the allocation of a trial date, which in some divisions of the High Court in South Africa, with the shortage of courts in relation to the number of cases awaiting hearing can be well in excess of 12 months for a trial date to be allocated;
  • agreeing on procedures to be adopted that avoid lengthy delays in determining procedural disputes prior to the dispute proceeding to trial;
  • confidentiality with respect to the dispute which is not the case in court as disputes are a matter of public record;
  • agreeing on whether the arbitrator’s decision is final or subject to appeal. Court decisions may be taken on appeal.  An aggrieved party may however apply to court on review if the arbitrator has misconducted himself in performing his duties as arbitrator or committed a gross irregularity in the proceedings.

Arbitration is 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, provided the procedures are stipulated, as well as the arbitrator’s powers defined, resolution of disputes by Arbitration can be conducted conveniently and expeditiously, so as to avoid unnecessary delays and the additional expense associated therewith, reducing procedural risks and attendant costs associated with litigation.

In our experience in both domestic and international arbitrations, governed by an agreement that addresses the issues highlighted above, we have found arbitration to be a cost effective, expeditious and preferred mechanism in resolving commercial disputes.