Arbitration vs litigation for commercial disputes in SA

Craig Assheton-Smith, director of Assheton Smith Incorporated, a litigation firm specialising in commercial litigation and dispute resolution, explains that arbitration is one of the mechanisms that can be used as an alternative to resolving disputes through the court system.

"Litigation through the courts is often beleaguered with an oversupply of disputes to be aired, and an undersupply of resources to cope with the volume of such disputes within timeframes that provide businesses with a platform for faster hearing and resolution," says Assheton-Smith.

He believes however that one must be aware of the shortcomings of the Arbitration Act 42 of 1965 ("the Arbitration Act") that governs arbitrations in South Africa. "The current Arbitration Act does not stipulate default rules regarding procedure and permits a recalcitrant party the opportunity to try and delay the arbitral proceedings by exploiting the provisions of the Arbitration Act that permit court intervention in such proceedings. These shortcomings may lead to costly and frustrating delays thereby undermining the arbitration process agreed between the parties."

No distinction between domestic and international arbitrations

In order to be enforceable, the parties must record their agreement in writing to arbitrate any existing dispute or any future dispute relating to a matter specified in their agreement. The Arbitration Act makes no distinction between domestic and international arbitrations.

In May 2001 the South African Law Commission (now the South African Law Reform Commission) proposed a new statute for domestic arbitration. Despite widespread support for the implementation of the Law Commission's recommendations, government is yet to implement changes to the Arbitration Act.

"Although the Arbitration Act has certain shortcomings and is outdated, the advantages of the determination of commercial disputes is accepted and recognised by legal practitioners and the business community of South Africa, which is evidenced by the rapid growth of arbitration as a forum for dispute resolution.

"South Africa remains behind the rest of the world (including African countries like Mauritius) in that it has failed to establish itself as an international arbitration centre by not bringing about the necessary changes to the Arbitration Act to meet international standards. In such circumstances parties wishing to have disputes internationally arbitrated generally choose to arbitrate such disputes in other jurisdictions" says Assheton-Smith.

Many of the shortcomings and issues arising from the Arbitration Act can be addressed in a written agreement concluded between the parties agreeing to arbitration by properly defining the dispute to be arbitrated, stipulating the powers and jurisdiction of the arbitrator, agreeing who the arbitrator is to be (or how he will be appointed), 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 and the confidentiality of the proceedings.

Provided an arbitration agreement is prepared to address the above issues and the arbitration process is properly administered, there are significant advantages of referring disputes for determination by way of arbitration which include:

• having an appropriately experienced person adjudicating the dispute;
  
• a faster determination of the dispute from the date of institution, as the parties can choose the date for hearing as opposed to waiting for the allocation of a trial date;
  
• agreeing on procedures to be adopted that avoid lengthy delays in determining procedural disputes prior to the dispute proceeding to trial;
  
• confidentiality with respect to the dispute which is not the case in court as disputes are a matter of public record.

"Resolution of disputes by arbitration can be conducted conveniently and expeditiously, so as to avoid unnecessary delays and the additional expense associated therewith, reducing procedural risks and attendant costs associated with litigation. In our experience of both domestic and international disputes we have found arbitration to be a cost effective, expeditious and preferred mechanism in resolving commercial disputes provided there is a proper agreement in place and the process is closely managed," concludes Assheton-Smith.

For further commentary and opinion from Craig Assheton-Smith, go to www.asilaw.co.za.