Commercial contracts have over time provided for the resolution of disputes by means of arbitration. Arbitration is favoured in commerce as disputes are resolved speedily by an arbiter who is agreed upon by the parties or who is appointed by a body that is agreed to by the parties. The courts respect this and respect the decisions of the arbitrators whether or not they agree with the arbitrator's legal conclusions. This was again demonstrated when the South African Supreme Court of Appeal ("the SCA") was called upon to look into a dispute that was decided by arbitration.

What is very interesting about this decision is that the court of first instance did not agree with the legal conclusions reached by the arbitrator and held that these were so incorrect that they constituted grounds for the review of the arbitrator's decision. The SCA applied a principle that is recognized by our law and stated that the conclusions that were reached by the arbitrator were legal conclusions and, as such, the court could not interfere with them. It is advisable to regulate dispute resolution and it is also advisable to have some kind of control over who become the arbiter of the dispute. When this power has been assumed, however, the courts have to respect it. Parties, therefore need to be very careful on who the arbiter is or who appoints the arbiter.

Arbitration is therefore important to avoid finding that a case is presented to an arbiter who may not have a useful appreciation of the issues in dispute. Once the arbiter has been chosen, the parties have to live with such arbiter's wisdom or folly.

Below is a summary of the SCA decision in the matter between Telkom and Telcordia

Background

During 1999 Telkom, entered into an agreement with Telcordia Technologies Inc. The main object of this agreement was for Telcordia to supply Telkom with a state-of-the-art automated telecommunication system. The agreement contained an arbitration clause.

Telcordia contended that it had to deliver software that complied with the specification, which had been mutually developed, agreed upon, and paid for by Telkom. Telkom, on the other hand, argued that the Project Plan had precedence over an Exhibit C, which contained the definition of 'specifications'. The arbitrator accepted Telcordia's interpretation in relation to the primary question and accordingly found it unnecessary to deal with the subsidiary questions.

Telkom made application for the review of the arbitrator's award in the High Court and the High Court held in Telkom's favour that the arbitrator had committed 'gross irregularities'. The irregularities that the court found were the following:

• that the arbitrator had committed an irregularity related to the nature of the evidence that the arbitrator took into account;
• that the arbitrator failed to appreciate the import of South African law in relation to both contractual interpretation and to the amendment of written contracts.

In setting aside the High Court's decision, the SCA found that the high court had disregarded the principle of party autonomy in arbitration proceedings and failed to give due regard to an arbitral award, this the court found to be contrary to something our courts have consistently done since the early part of the 19th Century.

The court found that an arbitrator 'has the right to be wrong' on the merits of the case and that the wrong interpretation of the agreement could not afford a ground for the review of an arbitrator's award by a court. The court found that the power given to the arbitrator was to interpret the agreement, rightly or wrongly; to determine the applicable law, rightly or wrongly; and to determine what evidence was admissible, rightly or wrongly.

Without determining whether the arbitrator was correct or not, the SCA held that the errors of the kind complained of by Telkom had nothing to do with the arbitrator exceeding his powers; they are errors committed within the scope of his mandate. To illustrate, the court stated that an arbitrator in a 'normal' local arbitration has to apply South African law; if he errs in his/her understanding or application of the local law, the parties have to live with that error. If such an error amounted to a transgression of his powers it would mean that all errors of law are reviewable, which the court found would lead to absurdity in the processes of arbitration. The order of the High Court was set therefore aside.

With the appreciation of a properly constructed dispute resolution procedure in commercial contracts, it is therefore key to know who your arbiter is and have some measure of comfort that your arbiter will not be prone to commit errors of merits, interpretation of agreements and the applicable law.

source: www.vfvmseleku.co.za