Arbitration and the impact on the development of common law

August 1st, 2024
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Arbitration, an alternative method of dispute resolution, is by no means a recent innovation in law. As of late, it is growing as the preferred method of dispute resolution, particularly in commercial disputes and industries such as construction and engineering, among others. The success of the recent inaugural Johannesburg Arbitration Week in April 2024, underscores this trend, showcasing the increasing reliance on and growth of arbitration in South Africa.

The appeal of arbitration

This rise in arbitration can be attributed to severally factors, the most common being the efficiency and cost effectiveness of resolving disputes compared to traditional litigation. Parties are also able to choose an arbitrator with the requisite expertise and experience. In addition to the above, arbitration provides parties with confidentiality and privacy, enabling the parties to avoid public controversy and safeguarding sensitive commercial information which may be exposed during discovery and other legal processes.

Effect on the common law

The rise in arbitration does, however, come with some concerns. One of these concerns is the potential impact of arbitrations on the development of common law. It is argued that the rise in arbitrations presents a challenge to the development of the common law. The resolution of complex commercial disputes behind closed doors bypasses the courts, thereby depriving courts of the opportunity to adjudicate on new and intricate commercial issues. It is further argued that the lack of judicial scrutiny and precedent-setting inherent in arbitrations hinders the public’s understanding of the law. Internationally, this concern was notably addressed by the Lord Chief Justice of England and Wales, the Right Honourable Lord Thomas of Cwmgiedd, in his Bailii Lecture 2016.

Duty to develop common law

It is well known that the development of the common law takes place on the facts before the court. If such facts are not before the court, then the law cannot be developed. Our courts and ‘judges are the custodians of the common law and … its development’, and they have an obligation to ‘refashion and develop the common law in order to reflect the changing social, moral and economic make-up of society’ (Muhammad Zakaria Suleman and Sarah Pudifin-Jones ‘The mighty solution: Tools practitioners may use to assist courts in developing the common law’ (www.wits.ac.za, accessed 28-6-2024) and S v Thebus and Another 2003 (6) SA 505 (CC)). It is a constitutional imperative as outlined in ss 8(3), 39(2) and 173 of the Constitution. This duty involves not only public law but also extends to private law.

As arbitration is conducted behind closed doors, the decisions which result from it have no precedent-setting value and are only binding between the parties. Whereas decisions adjudicated by courts of law enable the law to develop in light of reasoned judgments that are refined and tested by the judiciary through the creation of precedent and enable public scrutiny.

Could we strike a balance?

It is undeniable that the use of arbitration as a method of settling disputes is on the rise. It is also reasonable to assume that disputes which would typically be resolved in court – and thereby contribute to the development of common law – are now being settled privately. This shift could have an impact on the development of common law. Accordingly, it is essential to attempt to find a balance between the two.

Revise arbitration legislation and allow for (more) appeals

One of the proposed solutions to rebalancing the relationship between courts and arbitration, is revising arbitration legislation such as the Arbitration Act 42 of 1965 to allow for (more) appeals of arbitrations awards in courts, or to allow courts to make judgments on points of law that arise during arbitral proceedings. As it stands, under the Arbitration Act, unless the arbitration agreement provides otherwise, an arbitration award is final and binding on the parties and shall not be subject to appeal. The award can, however, be reviewed on limited grounds. It is thus argued that permitting appeals of arbitration awards or referring points of law to courts for adjudication, would facilitate the further development of common law.

This proposition is problematic as it essentially seeks to override party autonomy and compels parties to return to litigation. The deference to party autonomy was reaffirmed by O’Regan ADCJ for the majority in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 (4) SA 529 (CC) where it was held that when litigants agree to the adjudication of their disputes by arbitration rather than through the courts, such election should be respected.

Moreover, parties who opt for arbitration have commercial interests and are primarily concerned with resolving disputes efficiently, effectively and privately rather than contributing to the development of the law.

Publication of awards

Another proposition which has been made is the systemic publication of arbitration awards. While arbitration awards are not binding precedents, the publication of the awards will allow for insights into how complex commercial disputes have been resolved, allow for public scrutiny of the awards and they can further serve as persuasive authority, and promote transparency and predictability.

This is already being done by institutions such as the International Chamber of Commerce International Court of Arbitration, which provides a mechanism for the publication of some awards, albeit to a limited extend and in a redacted or anonymized form with the names of parties and other identifying information being removed.

However, there exists tension between the publication of arbitration awards and the highly prized confidentiality and privacy associated with arbitration.

Make litigation attractive again

Parties often choose arbitration over litigation due to the time-consuming and costly nature of litigation. Accordingly, a more obvious solution would be to enhance the appeal of litigation. This requires steps to be taken to improve the court systems to ensure that disputes are resolved promptly and at a reasonable cost. Additionally, it is crucial to appoint judges with the necessary expertise to handle sector specific disputes, similar to arbitrators.

Conclusion

As can be seen from above, there is no clear-cut solution to balancing the rise in arbitrations with the development of common law. The question itself – whether arbitration poses a threat to common law – is also up for debate, especially given the significant number of cases still being litigated in our courts, hence the backlog.

Any solution that seeks to balance the rise of arbitration with the development of common law development, must ensure that arbitration remains a viable and appealing option. South Africa has established itself as an attractive and competitive seat for arbitration and a forum for international disputes due to its legislative framework in the form of the International Arbitration Act 15 of 2017 and the reluctance of our courts to interfere in arbitration proceedings, giving effect to article 5 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, 1985. This position must be preserved and enhanced.

By promoting measures such as the publication of arbitration awards and enhancing the appeal of court litigation, this can help create a system where arbitration and the development of common law coexist. This approach leverages the strength of both arbitration and traditional litigation, fostering a legal framework that meets the diverse needs of modern dispute resolution.

Andile Mphale LLB (UJ) is a legal practitioner at Lebea Inc Attorneys.

This article was first published in De Rebus in 2024 (August) DR 27.

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