arbitration insights:WITH JACOB MUTEVEDZI
“When will mankind be convinced and agree to settle their difficulties by arbitration?”— Benjamin Franklin, 1783.
Since Benjamin Franklin posed that famous question back in 1783, anecdotally there is a notable increase in the employment of arbitration as an alternative dispute resolution mechanism. Have you ever wondered how people end up before an arbitral tribunal as opposed to a court of law? In this article we will examine how parties to a dispute end up in the theatre of arbitration.
To arbitrate, the parties must agree to do so. This article is confined to commercial arbitration and will not delve into compulsory arbitration prescribed by statute, for example arbitration applicable to resolution of labour disputes in terms of the Labour Act [Chapter 28:01]. The arbitration agreement is the foundation of commercial arbitration. It represents the wishes of the parties to submit their disputes to arbitration. Article 7 (1) of the UNCITRAL Model Law defines an “Arbitration Agreement” as:
“an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”
This definition is incorporated in our own Arbitration Act [Chapter 7:15]. Reference of present or future disputes to arbitration can be achieved in two ways:
(i) a clause in an agreement, in terms of which the parties undertake to submit to arbitration the disputes that may arise in relation to that agreement, usually referred to as “the arbitration clause” or (ii) an agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration, commonly referred to as “the submission agreement”.
Article 7 (1) of the Model Law states that the disputes must be in respect of “a defined legal relationship whether contractual or not”; it follows, therefore, that the dispute must be of a legal nature. Matters of moral or spiritual relations, for instance, are not fit subjects for arbitration.
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Certain disputes are not capable of arbitration and cannot be the subject of arbitration agreements. Section 4 (2) of the Arbitration Act enumerates a number of matters that cannot be resolved by arbitration at all and those that are arbitrable with leave of the court. These, in no particular order, include agreements that are contrary to public policy, disputes which in terms of any law, may not be determined by arbitration, criminal cases, matrimonial causes, matters affecting the interests of a minor or a person under a legal disability and matters concerning a consumer contract as defined in the Consumer Contracts Act [Chapter 8:03].
In terms of Article 7 (2) of the Model Law the arbitration agreement must be in writing:
“The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.”
We have seen that there are two types of arbitration agreements: “the arbitration clause” and “the submission agreement”. An arbitration clause envisages future conflict while a submission agreement contemplates existing conflict. Arbitration clauses are, by nature, usually short, whilst submission agreements are typically long. There is no legal requirement that these agreements be either short or long, the size is merely a reflection of the practicalities of the situation. An arbitration clause that deals with disputes which may arise in the future does not usually go into comprehensive detail since the parties do not know the nature of disputes that will arise and how they should best be handled. Indeed, although the parties to an agreement may agree to an arbitration clause, they hope that there will be no need to invoke it. As a result, they usually insert a short model clause, usually one recommended by an arbitral institution, as a formality. By contrast, a submission agreement deals with a dispute that has in fact already arisen and can, therefore, be fashioned to fit the circumstances of the case with precision. Oftentimes, further to indicating the place or seat of arbitration and the substantive law applicable to the dispute, the submission agreement generally names the arbitral panel, spells out the issues in dispute and even, should the parties be so inclined, provides for exchange of written submissions and other procedural matters.
For the arbitration agreement to be valid, all parties to it must have legal capacity to enter into that contract. As is the case with any other contract if any of the parties is under some incapacity the agreement is null and void. The general rule is that any natural or legal person who has the capacity to conclude a valid contract has the capacity to conclude an arbitration agreement. In terms of Article 34 (2) (a) (i) of the Model Law, lack of capacity is a ground for setting aside an arbitral award in the High Court. In practice, the issue of incapacity seldom arises in commercial arbitration.
In conclusion, by concluding an arbitration agreement, parties submit certain matters for exclusive resolution by arbitrators as opposed to the courts. The parties waive their right to court litigation and confer jurisdictional powers to the arbitrators. Once a conflict has arisen over any of the subjects included in the arbitration agreement, the courts will have no jurisdiction to resolve it unless both parties expressly or tacitly agree to waive the arbitration agreement.
l About the author: Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted at +263775987784 or at [email protected]
