30 September 2009

Private Arbitration: A victory in the Constitutional Court

Private arbitration continues to become increasingly recognised both domestically and internationally as an important method for resolving commercial disputes. The extensive use of private arbitration may be attributed to a number of factors, including its flexibility, privacy, cost-effectiveness, convenience and speed. In South Africa, these attributes are attractive to commercial parties eager to avoid lengthy court proceedings, which are often rigid, expensive and fraught with delay.

The ability of an aggrieved party to review an arbitrator's award has been the source of vigorous debate in our courts in recent times. In March 2009, the Constitutional Court of South Africa handed down judgment regarding this aspect of private arbitration in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another (2009) ZACC 6.

Mphaphuli was awarded a tender for the electrification of a number of rural villages in Limpopo by Eskom. Mphaphuli subsequently sub-contracted some of its obligations to Bopanang. A dispute arose between the two concerning their indebtedness to each other.

Nigel Andrews was appointed by the parties to resolve the dispute in terms of an arbitration agreement concluded between them. After the conclusion of the arbitration, in favour of Bopanang, the record of the arbitration was made available to the parties. What the record revealed, Mphaphuli alleged, was that Andrews had held a number of 'secret meetings' with Bopanang during the arbitration, and that these meetings had influenced his award.

The Arbitration Act 42 of 1965 governs private arbitrations in South Africa. Section 33(1) of the Act provides narrow grounds on which an arbitrator's award may be reviewed for procedural irregularities. Mphaphuli failed in its attempts to have Andrews' award reviewed and set aside in both the High Court and the Supreme Court of Appeal in terms of s 33(1) of the Act. In its application for leave to appeal to the Constitutional Court, Mphaphuli asked the Court to consider the applicability of section 34 of the Constitution (which enshrines the right to a fair and impartial hearing) to private arbitrations, as well as the extent to which courts are entitled to scrutinise arbitration awards.

After granting Mphaphuli's application for leave to appeal, O'Reagan ADCJ, writing for the majority, held that s 34 does not apply directly to private arbitrations. On the facts, she found that the arbitration had been conducted fairly and that Andrews did not misconduct himself, commit a gross irregularity or exceed his powers.

O'Reagan held that private arbitrations must be distinguished from court proceedings, where s 34 applies, as not only do parties consent to the arbitration, but they agree that the adjudication of their dispute will not be heard in public. O'Reagan was keen to stress that s 34 contemplates proceedings that are provided for by the state and thus those held in public. Private arbitrations, she held, are different creatures, ones that should not be directly regulated by s 34.

Because s 34 does not apply directly to private arbitrations, courts are limited to the grounds set out in s 33(1) of the Arbitration Act when reviewing arbitration awards.

This does not mean that arbitrations should not be conducted fairly; O'Reagan stressed that fairness is one of the core values of our constitutional order. The judgment in Mphaphuli merely means that the standard of fairness required in private arbitrations is not that expected in a court of law. However, if an arbitration agreement contains a provision that is contrary to public policy in the light of the Constitution, that provision will be null and void.

The call by our highest court to our courts to respect findings made by independent arbitrators and not to enlarge their powers of scrutiny beyond s 33(1) of the Arbitration Act, should be seen as an affirmation of private arbitrations and the crucial role they play in expediting commercial dispute resolution.

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