Any tradesman will tell you that turning a screw with a chisel is at best inefficient, at worst dangerous. Just like a chisel, arbitration is a tool with a clear purpose and if used in the wrong application or by an unskilled operator it will at best underperform, at worst bring disaster.
Arbitration is often favoured over resolving disputes in open court for reasons of cost, confidentiality and the ability to choose an arbitrator with deep experience in the subject matter of the dispute. These points are all relevant and important and arbitration remains a powerful and often appropriate mechanism for dispute resolution but it remains a dispute resolution tool, not all things to all people.
Arbitrations can be very cost effective and speedy when the parties are able to work together to get the real dispute to a hearing. However, when one of the parties wants to delay or avoid the hearing altogether arbitration can be a very slow and frustrating process. That is when the choice of arbitral institution and arbitrator becomes very relevant. A strong arbitral institution with good rules and a strong arbitrator prepared to apply the rules significantly reduces the opportunity for a party intent on delay. Much of the success of an arbitration then is in the hands of the people drafting the initial agreements. Unfortunately arbitration clauses in agreements are often regarded as standard or boilerplate clauses and are included without much thought being given to the potential parties to a dispute, the nature of the dispute and the circumstances in which a dispute might arise. Although this will involve substantial crystal ball gazing those are the kind of factors vital to the crafting of an arbitration arrangement.
Confidentiality of arbitration may turn out to be more perceived than real if the enforcement of the arbitration award requires an application to in court. Aside from the fact that courts are public and the business of the courts is reported on daily, a listed company may also attract reporting obligations to its shareholders on matters and issues dealt with in an arbitration or an award.
An arbitrator “has the right to be wrong” according to the Supreme Court of Appeal in Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA). Bearing that in mind and that the arbitration process is final and binding and not subject to appeal to the courts, building into the arbitration process an appeal mechanism is often prudent. The right to appeal to a further arbitrator or panel of arbitrators must be weighed against the need for a speedy resolution of disputes but disallowing an appeal process in the interests of certainty and finality in the dispute may not always be in the interests of the parties. Absent an appeal process, the only remedy is to apply to court to review the award on the basis of gross irregularity, misconduct or on the basis that the award was improperly obtained. These grounds of attack are very challenging being directed at the process by which an arbitrator came to making the award, as opposed to the finding itself being wrong.
A broader consequence of arbitrations, particularly where there is no right of appeal, is that the courts’ opportunity to develop and explain the common law is stifled. The common law must be developed and explained by the courts to keep pace with technological advances and increasing globalisation of trade and commerce. Arbitrators unfortunately can only apply the law, not develop it.
While arbitration remains an extremely useful tool for the resolution of disputes in a confidential forum, it remains a tool not a magic wand.
Sonia de Vries and Terrick McCallum, Dispute Resolution practice and services, Cliffe Dekker Hofmeyr.