Arbitration: In Pursuit of Contractual Freedom Rather than its Limitation 

May, 2017 - Armando Aguiar and Kiyahsni Kollapen

The notion of contractual freedom has long been recognised in the entrenchment of the principle that agreements should be honoured. In this context, the decision by private contracting parties to submit a dispute to arbitration falls clearly within the purview of the valid exercise of contractual freedom. South African courts have consistently recognised this as a principle of party autonomy and afforded a high degree of deference to the awards of arbitrators permitting a minimum degree of judicial intervention, particularly when it comes to the setting aside of an arbitrator’s award.

The circumstances under which an arbitrator’s award may be set aside are limited in terms of the Arbitration Act, 1965 (the “Act”). Section 33(1) of the Act provides for the setting aside of an award only where:

any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or

an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers;

or an award has been improperly obtained.

In the recent case of Riversdale Mining Limited v Du Plessis, the South African Supreme Court of Appeal (“SCA”) again considered the scope and extent of section 33(1)(b) of the Act, which provides for the setting aside of an award where an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers.

Not much turns on the facts of the case, as they are neither peculiar nor special. The parties to the litigation were involved in a dispute and even though the agreement that regulated their contractual arrangements did not provide for a reference to arbitration, they nevertheless agreed to submit the dispute to arbitration. Following an award made that effectively upheld an exception to the statement of claim and concluding that the agreement between the parties was unenforceable, the aggrieved party sought to rely on section 33(1)(b) of the Act and have the award set aside.

The High Court set aside the award on the grounds of gross irregularity. On appeal, the High Court order was reversed and the SCA concluded that the High Court misunderstood the nature of the proceedings before it, treated the matter as an appeal and failed to appreciate the ambit of the court’s power of review. These remarks clearly accord with the principles of party autonomy and the minimising of judicial intervention.

What was of significance, however, was the SCA’s consideration of the grounds of review relied upon, namely an arbitrator committing a gross irregularity and exceeding his powers. With regard to the latter challenge, the SCA concluded from a review of the terms of reference, as well as correspondence between the parties, that the referral to arbitration was in respect of various disputes, as opposed to a single dispute, and dismissed the complaint on this leg. However, in doing so, the SCA pointed out a clear stance it would adopt in the interpretation of arbitration clauses, which can be summarised as follows:

arbitration clauses are to be interpreted liberally to give effect to their essential purpose;

the essential purpose of an arbitration clause is to resolve legal disputes before a privately agreed tribunal rather than through the courts;

in general, good business sense would indicate that parties intend all their disputes to be determined by the same tribunal (unless clear language indicates otherwise); and

there is a presumption in favour of “one-stop arbitration”.

These remarks are significant in recognising that courts will generally give considerably wide scope to the powers of an arbitrator and the presumption in favour of a one-stop arbitration will certainly make a challenge based on an assertion that an arbitrator exceeded his or her powers increasingly difficult. The lesson is clear – unless an arbitration clause is constructed in such a manner that reflects the clear intention of the parties to limit the scope of the dispute that an arbitrator may deal with, courts will be slow to come to their assistance.

Of course, the decision may be criticised for going too far in making certain assumptions about the scope of the authority of an arbitrator; namely, that parties generally intend all their disputes to be determined by the same arbitrator. It does, however, make good business sense to make such an assumption.

Reverting to the challenge of the award, it was contended that the arbitrator had erred in his interpretation of certain clauses of the agreement between the parties, as read with the arbitration agreement. In crisply dealing with this point, the SCA pointed out that even if this was so, it would constitute a mistake of law that was not a reviewable irregularity in terms of section 33(1)(b) of the Act.

In this regard, the SCA relied on the judgment in Telecordia Technologies Inc v Telkom SA, which confirmed that an error in law did not, in itself, constitute a gross irregularity and that if that should happen, then the parties had to accept it.

The election to opt for arbitration, while it has its considerable advantages, also comes with its own consequences, for example, the limited scope of the opportunity to challenge and set aside an award. It is incumbent on practitioners, when advising clients on the advantages of arbitration to simultaneously point out that, in the real world, the chances of successfully invoking section 33 of the Act, remain formidable.




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