Author: Jesicca Rajpal, Bianca Da Costa and Muhammed Moti at Fasken
South African courts value the principle of party autonomy as a realisation of the freedom of parties to enter into and execute private arbitration agreements.
Court interference is usually limited to the grounds of procedural irregularities set out in section 33(1) of the Arbitration Act 42 of 1965.1 One of the grounds upon which an arbitrator’s award may be reviewed is based on gross irregularity and this is determined by whether the arbitrator’s conduct prevented a fair trial of issues.
Considerations for ‘Gross Irregularity’ and ‘Exceeding of Powers’
Section 33(1)(b) of the Arbitration Act 42 of 1965 governs the review of arbitral awards. It provides that where an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or exceeded its powers, the court may, make on the application of any party to the reference after due notice to the other party or parties, an order setting the award aside.
Reference to Case Law
This issue was dealt with in the case of Eskom Holdings Limited v The Joint Venture of Edison Jehamo (Pty) Ltd and KEC International Limited and Others2 (the JV). The JV successfully reviewed an arbitral award in the Johannesburg High Court in respect of six out of 13 claims pursued by the JV against Eskom. The High Court ordered that another arbitrator consider the six claims afresh. It was of the view that ‘expanded issues’ (which had not been raised in the pleadings and were raised in argument) were not fully ventilated, and consideration of such issues resulted in an unfair hearing. Interestingly, however, the High Court found that the arbitrator did not exceed his powers as he dealt with those issues referred to arbitration as set out in the notices of dissatisfaction filed by the parties.
Eskom appealed the High Court’s decision to the Supreme Court of Appeal (SCA), and the SCA confirmed that no gross irregularity or exceeding of authority was shown on the part of the arbitrator in terms of section 33(1)(b) of the Arbitration Act 42 of 1965. Consequently, the order of the High Court was set aside.
‘Gross Irregularity’
In its decision, the SCA cited the case of Telcordia Technologies Inc v Telkom SA Limited3, where it considered the interpretation of the terms ‘gross irregularity’ and ‘exceeding its power’, which justifies interference by courts with arbitral awards as provided for in Section 33(1)(b).
It reaffirmed the principle of party autonomy and also outlined the test to determine whether an arbitrator’s conduct constituted gross irregularity as being whether the conduct of the arbitrator or arbitral tribunal prevented a fair trial of the issues.4
‘Exceeding of Powers’
Furthermore, the SCA in Telcordia also referred to the distinction made by Lord Steyn in Lesotho Highlands Development Authority vImpregilo Spaand Others5 between a tribunal purporting to exercise a power or jurisdiction which it does not have and erroneous exercise of power that it does have. ‘If it is merely a case of erroneous exercise of power vesting in the tribunal no excess of power under section 68(b) is involved.’
Conclusion
It is imperative to distinguish between situations where a tribunal purports to exercise power which it does not have and where a tribunal erroneously exercises power that it does have. In the latter case, the tribunal has not exceeded its power and its decision cannot be reviewed based on the fact that it has exceeded its power.6
The test in determining whether an arbitrator’s conduct constitutes gross irregularity is whether the arbitrator’s conduct prevented a fair trial of issues. In the Eskom case, it is clear that the arbitrator’s conduct did not prevent a fair trial of issues and therefore did not amount to gross irregularity or exceeding of authority.
Parties choose arbitration over litigation for its confidential and final nature. But with proceedings taking place behind closed doors and limited prospects of challenging a final award, who’s keeping watch over the process?
Section 68 of the Arbitration Act 1996 (the ‘Act’), one of three limited avenues available for parties to challenge a final arbitration award, relates to failings in the arbitral process itself, rather than the accuracy of the tribunal’s decision.
It provides a gateway for parties to challenge an arbitral award in court where there’s been a ‘serious irregularity’ which has affected the tribunal, proceedings or award. It applies to all arbitrations subject to its scope and parties cannot opt out of it.
The grounds on which an application can be made to the court under s.68 are prescriptive and intentionally limited, requiring the affected party to show that the irregularity has caused a ‘substantial injustice’. The substantial injustice test was intentionally introduced to create a high bar, reflecting a policy of support for private arbitration, and to limit interference by the courts.
As the authors of the Act explained, s.68 is ‘really designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected’. But just how extreme does a case need to be for courts to review a decision?
The Non-interventionist Trend
A recent report on arbitration trends over the last 11 years found there were very few s.68 challenges referred to the court, and even fewer which were upheld. In that period:
- only 538 cases were decided by the English courts in the last 11 years which substantively concerned a provision of the Act
- in the case of referrals under s.68, only 125 challenges were made during the report period, of which 105 resulted in a decision
- of those decided cases, only 14 challenges were successful.
These figures are often rightly seen as a reflection of the courts’ strong, pro-arbitration approach; one which doesn’t interfere in the parties’ dispute resolution arrangements which they’ve freely entered into.
But as arbitration becomes increasingly popular there’s arguably a shortfall in accountability caused by an absence of any clear and effective mechanism for reviewing the way in which arbitrations are conducted. Only 14 successful s.68 challenges over an 11-year period seems remarkably few. For court users, hearings are public and there’s an established appeal mechanism to ensure consistency in judicial decision making. The same isn’t true for those who agree to arbitrate.
Is there a case for greater oversight?
In November last year, the Law Commission announced that it will conduct a review of the Act “to ensure that the UK remains at the forefront of international dispute resolution”. It hasn’t yet been confirmed what areas of the Act will be under review, but whatever areas are looked at, clearly the aim should be to modernise and reinforce England as a leading centre for international arbitration.
With that in mind, perhaps now is the time to look at s.68 and consider whether it’s sufficient, or whether another mechanism is needed to ensure there’s clearer oversight, ultimately safeguarding the integrity of the arbitral system.
