Arbitration series – Part one: What is arbitration?

Arbitration is one of a few dispute resolution mechanisms which include conciliation (negotiation), mediation, and litigation. It is regulated by the Arbitration Act 47 of 1965 (“the Act”) as amended. The Act does not provide for a definition of arbitration. Butler and Finsen in their book, Arbitration in South Africa Law and Practice, provide the following definition of arbitration, stating that, “[a]rbitration is a procedure whereby the parties to a dispute refer their dispute to a third party known as an arbitrator for a final decision, after the arbitrator has first unpartially received and considered evidence and submissions from the parties.”1

The authors furthermore explain that the reference to an arbitrator, chosen by the parties, is pursuant to an agreement between the parties. An arbitration agreement is defined in the Act as, “a written agreement providing for the reference in arbitration of any existing dispute or any future dispute relating to a matter specified in the agreement, whether an arbitrator is named or designated therein or not.” The agreement could be an ad hoc agreement to arbitrate or be included as a clause in an agreement whereby any dispute arising from or out of the agreement be referred to arbitration. An oral agreement to arbitrate will by virtue of the aforementioned definition not be governed by the Act but by common law.

From their definition, the authors identify 5 essential characteristics of arbitration2, namely:

1. It is a process for resolving a dispute between parties in lieu of their existing rights. This is important for two reasons, namely to render the arbitration agreement enforceable and to establish the arbitrator’s jurisdiction;
2. The dispute is between two or more people arising from a consensual enforceable agreement. This consensuality between the parties makes arbitration a flexible procedure for resolving disputes;
3. The parties themselves, or by someone designated by them if they cannot agree, appoint the arbitrator. The arbitrator has no connection with the courts and therefore arbitration is a process of resolving disputes as alternative to the courts;
4. The arbitrator should determine the rights of the parties impartially and treat the parties fairly. According to Butler and Finsen, in applying the rules of natural justice, an arbitrator should not be viewed as acting in a judicial manner;
5. The arbitrator’s decision in determining the dispute, known as his award, is final and binding upon the parties. The award is not subject to appeal in the courts.

It is thus clear that arbitration is a consensual agreement between the parties to the dispute and therefore contractual in nature, and consequently subject to the law pertaining to contracts. Any party therefore, with contractual capacity, may enter into a binding arbitration agreement. The Act, in section 2, however, prohibits arbitration in respect of any matrimonial case or any matter incidental thereto and any matter relating to status. This is left to the courts to adjudicate on.

In part II of this article series, the advantages and disadvantages of arbitration will be discussed, followed by a comparative discussion of mediation and arbitration in part III. In part IV, certain aspects of an arbitration agreement will be highlighted.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)