A Refreshing New Approach to Arbitration

A new form of arbitration, Fast Low-Cost Arbitration, pioneered by Judge Ezra Goldstein, is proving to be very successful. Commercial attorneys are encouraged to include in contracts a clause providing for this. An article was recently published by De Rebus, which is reproduced below and an example of such a clause is included at para 5.

Some highlights of the new approach are:

·??????? Dispute about the sale of a house. Settled during a WhatsApp call between both parties and the arbitrator after 1.75 hours at R920,000.

·??????? Estate Agent’s commission of R250,000 conducted by email and online. Arbitrator’s time 16 Hours 41 minutes. Arbitration began on 8 May 2023 and ended on 18 May 2023 with a 16 page award, referring to three reported cases and the Consumer Protection Act 68 of 2008.

·??????? Claim seeking to hold a director personally liable for R2,041,365. Meeting with two main protagonists – 62 page typed record of meeting. Prima facie view, apparently ending the matter, expressed in 7 pages citing textbook authority, two South African cases and sections of the Companies Act. Arbitrator’s time 12 Hours 46 minutes.

• Ezra Goldstein (Judge)

[email protected] and [email protected]

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FAST LOW-COST ARBITRATION

(As published by De Rebus here https://www.derebus.org.za/fast-low-cost-arbitration/ )

1.?The arbitration agreement reads:

The parties appoint A as arbitrator to decide the dispute arising out of the sale of X’s property in Waverley, Johannesburg to Y applying the law as far as practicably possible, tempered by fairness, and as informally as he chooses, and with a view to limit costs in his sole discretion and without being bound at all by any pleadings the parties may have exchanged.

2. The Arbitrator interviews claimant and defendant together, with or without representation, questions them, looks at the documents and other evidence, researches the law and makes a decision. If the arbitrator can mediate a settlement along the way he tries to do that. Litigants pay for time actually spent and there is no day fee. The meeting sessions are mostly limited to two hours and so can occur flexibly including before or after office hours to suit the convenience of the parties.

3. The procedure can be tweaked in various ways. For example, the arbitrator can hear both sides informally, research the law, if necessary, and then supply the parties with an oral or written prima facie view giving the “loser” the opportunity to convert the proceedings to a formal arbitration with pleadings and evidence, etc. Good arbitrators are prepared to change their minds. I myself sitting as a judge concurred without qualification in the Full Court decision of South African Druggists Ltd v Beecham Group plc 1987 (4) SA 876 (T). That decision included a significant passage at 880A-B. Later in Government Mining Engineer and Others v National Union of Mineworkers and Others 1990 (4) SA 692 (W) at 705E, I stated that my view was now at variance with the correctness of that passage. And every judge who grants leave to appeal acknowledges that she may have erred. (I must confess that often when counsel asked me for leave to appeal against one of my judgments I used to ask them if they hoped to persuade the court of appeal to go wrong!)

4. To overcome the problem of getting a prospective defendant to agree to fast inexpensive arbitration say to him: if you refuse to agree to this inexpensive route my client will sue you in the High Court / Magistrates Court and the case will cost you a lot more. This is a unique feature of fast arbitration, which incidentally is particularly suited to smallish claims which make litigating in the ordinary way prohibitively expensive.

5. Of course, the problem of getting agreement to fast arbitration can be resolved when the contract between the parties contains a clause along the following lines: “Any dispute arising from this agreement will be referred to arbitration by Arbitrator X or, failing him for any reason, by an arbitrator agreed to between the parties and in the absence of agreement, by an arbitrator appointed by the Chairperson of the Johannesburg Bar Council and the appointed arbitrator will apply the law as far as practicably possible, tempered by fairness, and as informally as he chooses, and with a view to limit costs in his sole discretion and without being bound at all by any pleadings the parties may have exchanged.” The clause can also be amplified by providing that it will only apply to claims of, say, R500?000 or R1?000?000, or less. Of course, provision must then be made for exactly how claims for more are to be dealt with by arbitration or court, if appropriate.

6.?To reduce arbitration time and to increase the expeditious effectiveness of the procedure attorneys and counsel ought to ensure that their clients are fully prepared and focused on the relevant issues, and also that a bundle of the relevant documents is prepared and paginated for both sides and for the arbitrator. Usually, an index is unnecessary and unhelpful and just results in extra costs. I proceed to discuss terms of the arbitration agreement in paragraph 1 above.

7.?“….. applying the law as far as practicably possible ….”

If a particularly difficult law or factual point arises the arbitrator can try to get agreement between the parties as to how it can be resolved at the least cost, for example, if it is difficult to assess the quantum of damages the arbitrator can try to get the parties to agree to such a quantum or he can make an educated guess, after discussion with the parties, at what it is without getting into the difficulty of having to have all the evidence investigated. Another example: on a difficult legal point which might require many hours of research the arbitrator can make an educated guess, after discussion with the parties, on what the law ought to be. Another example: where the difference between a party and party costs order and an attorney and client costs order depends on investigating complicated facts the arbitrator can refuse to do so and just order party and party costs.

8. “….. tempered by fairness”

Gives the arbitrator the power to rule fairly despite uncertainties or technical difficulties. For example, he would have the power to order apportionment of damages in contract, as was done in Thoroughbred Breeders Association of South Africa v Price Waterhouse 1999 (4) SA 968 (W) - overruled on appeal by the Supreme Court of Appeal, 2001 (4) SA 551 (SCA), by a majority of four to one, while acknowledging at 590E that the Court’s sympathies were with the minority which favoured apportionment and that there was “a pressing need for legislative intervention.” See further McCarthy Ltd v ABSA Bank Ltd 2009 (2) SA 398 (W) at 400F–I. The arbitrator would also be able to avoid following the majority decision in Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA)(Pty) Ltd 1985 (1) SA 475 (A), and, instead be able to follow the minority and the court a quo – 1983 (2) SA 157 (W) - where fairness required this. Why one may ask should there not be an action in delict where a contractual obligation is negligently discharged and why should the quantum of damages not in fairness be the difference between the value of the performance actually rendered and what it would have been had the contractual obligation been performed with the care a reasonable man would have taken?

9. “… with a view to limit costs ….”.

This is the constant focus.

10. “…in his sole discretion …”.

This gives the arbitrator the power to make effective decisions along the way without being hidebound by formalistic restrictions.

11.?“… without being bound at all by any pleadings the parties may have exchanged….”

This is an attempt to avoid the unfortunate apparently absolute rule that arbitrators are bound by the pleadings incorrectly stated by the Supreme Court of Appeal in Gutsche Family Investments (Pty) Ltd & Others v Mettle Equity Group (Pty) Ltd & Others (115/2011) [2012] ZASCA 4 (8 March 2012) Para [18] (c). Gutsche deviates from Hos+Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing & Consulting (Pty) Ltd and Others 2008 (2) SA 608 (SCA) and Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA).

In Hos+Med the arbitration agreement expressly stated that the issues for determination were those defined in the pleadings – 611F, and the Court at 616-617 para [30] footnote 5 distinguished Telcordia and seems to indicate that if the arbitration agreement were as wide as that in Telcordia the arbitrator and the arbitral appeal tribunal in Hos+Med would have been entitled to deviate from the pleadings. In Telcordia page 280 para [7] the agreement “provided that ‘all disputes between the parties that may arise’ had to be determined by the arbitrator.”

In Close-Up Mining (Pty) Ltd and Others v The Arbitrator, Judge Phillip Boruchowitz and Another 2023 (4) SA 38 (SCA); (286/2022 [2023] ZASCA 43 (31 March 2023) the Supreme Court of Appeal in paras [8]–[15] without mentioning Gutsche in effect overrules it and follows Hos+Med, stating that it cannot be said “(a)s an invariable statement of the competence of an arbitrator” that he is bound by the pleadings. The Court states correctly that the arbitration agreement is the source of the arbitrator’s powers and the agreement must determine whether the arbitrator is bound by pleadings or not. The judgment is marked “Reportable”, correctly so. In para [9] Unterhalter AJA states that he is “fortified in my opinion by the unreported decision in this Court in Holford.”

In Holford v Carlea Enterprises (Pty) Ltd and Others (977/2013) [2014] ZASCA 195 (28 November 2014) the Supreme Court of Appeal in a judgment marked “NOT REPORTABLE” and without mentioning Gutsche in effect overrules it too, stating in para [8] that “(t)he powers of an arbitrator ….. derive from the arbitration agreement”, and stating in para [9] that the agreement in Holford gave the arbitrator “such powers as are allowed by law to a High Court of the Republic of South Africa to ensure the just, expeditious, economical and final determination of the dispute and shall have all of the powers afforded to a judge of the High Court of South Africa ….” and that since a court would be entitled to decide an unpleaded issue properly ventilated, where no prejudice to either party occurred, an arbitrator could do so too.

An interesting footnote which indicates how unpredictable and vagarious litigation can be (even if it not Fast Arbitration and even if it occurs in the highest of courts!) is that Hos+Med says otherwise about this very point. In paras [29] and [30] the Supreme Court of Appeal appears to have accepted the submission that where the arbitrator and the arbitral appeal tribunal were vested with “the powers of a High Court and the Supreme Court of Appeal, respectively” these were “procedural powers and do not confer jurisdiction to determine matters on which the parties have not agreed.”