Arbitration Practice Principles – #SA2 insights

I always had a narrow view on Arbitration. For the longest time, I thought Arbitration was merely the sitting down of parties around a table and coming to an agreement which will be binding. I further thought that arbitration was one way for parties to avoid going to court and incurring legal costs. I must admit that I have been proved wrong by the #SA2. Arbitration is deeper, more intensive and mentally demanding. For me, that is exciting.

On 17 September 2022, we learnt about the principles of arbitration. Ms Robyn Khumalo of Herbert Smith Freehills defined arbitration as “a private, non-national system of dispute resolution by an impartial tribunal based on parties’ agreement. The award is final and binding – no appeal on fact or law; limited grounds to set aside or resist enforcement and that it is globally enforceable around the world on a largely common basis”.[1]  

We were taken through the types of arbitration which included the Ad hoc, Ad hoc+, Administered Ad hoc arbitration (Ad hoc ++) and Institutional arbitration. All these types of arbitrations were based on agreements to submit to the arbitration.

Arinda Truter of SchoemanLaw Inc mentions that the parties need to enter into a written agreement agreeing to arbitration.  This agreement [2] 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

We were told to take our litigation hats off when it comes to arbitration. The reason being that litigation and arbitrations are fundamentally different. The primary reasons why parties arbitrate is to enforce against the other side’s assists around the world, for privacy and neutrality.

I learnt that unlike litigation where a court order is only enforceable in the country of issue, arbitration is international and there are multiple laws in international commercial arbitration [3] which include:

1. The law applicable to the underlying contract or the merits of the case;
2. The law governing the arbitration agreement;
3. The law applicable to the procedure;
4. The law of the seat of the arbitration;
5. The law of the place where recognition and enforcement is sought; and
6. The personal law each of the parties to the arbitration.

I learnt an interesting fact. An arbitration awards can be heard in a different country that does not necessarily have jurisdiction. This means that unlike litigation where the court with jurisdiction must be the court where the cause of action arose or where the defendant resides, the common law approach of arbitration is determined by the law chosen by the parties to govern the arbitration agreement or in absence of such express or implied choice, the system of law which the arbitration agreement is mostly closely connected.

 

Where parties failed to specify the governing law of the arbitration agreement, the default position is the seat of the arbitration. However, where the arbitration is governed by the International Arbitration Act 15 of 2017, the seating jurisdiction will determine the applicable procedural law and the courts of that country will have supervisory jurisdiction in respect of the arbitration.

Article 2 (1) of the New York Convention states: “Each Contracting State shall recognise an agreement in writing underwhich the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”

What can be taken from the above definition is that arbitration must be consensual, there must be capacity, the process must be legal and in the form of writing.

The key concepts of an arbitration agreement are as follows:

1. Governing law
2. Submission to arbitration
3. Set
4. Institutional rules
5. Number of arbitrators
6. Language

In terms of the New York Convention, an award can be generated at the seat which is taken by the award creditor to a different jurisdiction and ask for the award to be enforced under the New York Convention by the enforcing court.

According to Article 5 of the New York Convention, recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent court/authority where the recognition and enforcement is sought, proof that:

1. Incapacity of the parties or invalidity of the agreement;
2. Party the award is against was not given proper notice of the appointment of the arbitrator or the arbitral proceedings;
3. The award goes beyond the scope of submission to arbitration;
4. Composition of the arbitral authority not in accordance with the agreement;
5. Award is not yet binding on parties or has been set aside by a competent authority.

The United Nations Commission On International Trade Law (UNCITRAL) Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice having been accepted by States of all regions and the different legal or economic systems of the world.[4]

I plan to use this knowledge to encourage more mediation and arbitration processes in the legal matters I deal with daily. Arbitration is not only a cheaper alternative, but also quicker and confidential. The parties choose to disclose their matter to create precedence. Perhaps my biggest criticism of arbitration is that case law is not easily created as the parties remain with the total discretion to make the arbitration award public. Case law has paved a way in the dessert and provides legal practitioners and the general public with guidance in unique circumstances. Of course there are exceptions, but it is unlike litigation where all matters are public and some even reportable.

In conclusion, arbitration is wholly in the hands of the parties. The parties have better control of how the process goes. The parties are able to choose the arbitrators, the language to be used, the country where the matter will be sitting, and the laws applicable. The only thing the parties need is a well drafted and concise arbitration clause in a contract. This is the most important start in most arbitrations.

[1]      Herbert Smith Freehills Principles of Arbitration (17 September 2022) presented by Jonathan Ripley-Evans, Candice Grieve, Johanna Lubuma and Robyn Khumalo

[2]        https://www.polity.org.za/article/arbitration-in-south-africa-2017-05-05#:~:text=Arbitrations%20in%20South%20Africa%20are%20governed%20by%20the,their%20agreement.%20The%20dispute%20is%20heard%20privately%20

[3]      Herbert Smith Freehills Principles of Arbitration (17 September 2022) presented by Jonathan Ripley-Evans, Candice Grieve, Johanna Lubuma and Robyn Khumalo

[4]        https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration