Learning Unit 13-Dispute Resolution
Learning Unit 13-Dispute Resolution
Disputes are part of life. People become involved in disputes for various reasons. A dispute
could arise from a personal or commercial relationship. It could also arise from interaction with
the state and its organs. Disputes can be resolved in many ways. Generally, disputes are
resolved in a court of law. But it has been proven that courts of law have inherent flaws when
it comes to the resolution of disputes and that there are alternative ways to resolve disputes to
the satisfaction of the parties to the dispute.
Alternative Dispute Resolution (ADR) is defined as ‘all forms of dispute resolution other than
litigation or adjudication through courts’. In other words, ADR is the generic name for
resolution of disputes outside the judicial process or litigation in a court of law.
Under the ADR, there are several ways of settling business rifts, which are less painful, more
accommodating, “non-litigative,” “non-adversarial,” or “alternative-to-court” processes. These
methods include: negotiation, mediation, conciliation and arbitration. Out of all these,
arbitration seems to be the commonest and most developed of all these methods.
However, it is noted that there is a tendency to confuse arbitration with other forms of
alternative dispute resolution methods, especially, conciliation and mediation. To understand
these methods and their subtle differences, it is imperative for these methods to be discussed.
Generally, one of the reasons for ADR is the undue delay suffered by litigants in the normal
courts. According to Justice Adam, the following reasons have been identified as the adoption
of alternative dispute resolution mechanism:
Mediation and Conciliation are possible alternatives to arbitration. The two terms are
sometimes used as if they are interchangeable. The two terms are sometimes used as if they are
interchangeable.
Mediation is the voluntary process by which a third person called a ‘mediator’ assists the parties
in actual or potential litigation to resolve the dispute between them by facilitating discussions
between the parties. Typically the mediator will help them identify issues, clarify priorities,
explore areas of compromise and generate options in an attempt to resolve the dispute.
However, a mediator is usually taken to be a person accepted by the parties whose role is to
help them reach an agreed settlement. He will see each partly privately and listen to their
respective viewpoints. He will try to make sure that each party understands the others’ point of
view. He will also try to bring the parties together in order that they may themselves achieve a
compromise solution.
A conciliator performs a different function in that he will himself draw up and propose the
terms of an agreement designed to represent what is, in his view, a fair compromise of a dispute,
after having discussed the case with the parties.
In contrast to the many versions of arbitration rules which exist, there are relatively few
internationally accepted rules of procedure applicable to conciliations. However, there is
generally accepted rule that before drawing up his award (which takes the form of a proposed
settlement agreement), it is appropriate for the conciliator to ensure that each party has had an
opportunity to rebut the evidence and submissions made by the other.
2. Arbitration
An arbitration is the reference of a dispute or difference between not less than two persons for
determination after hearing both sides in a judicial manner by another person or persons, other
than a court of competent jurisdiction.
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Arbitration as a mode of settling dispute is of great antiquity. The settlement of disputes
between city-states, and at a later date, between other polities, by arbitrators can be shown to
have occurred from pre-classical antiquity down to the late Middle Ages, with varying
importance at different periods of history.
It also dates back to early ages in stateless societies when disputes were put before elders of a
clan or tribe. In the sense, arbitration was known to virtually all legal systems. Most indigenous
systems of customary law in Africa knew and recognised resort to traditional arbitration before
neighbours or elders. This mode of dispute resolution is still very much in use in many Nigerian
communities and English type courts recognise and enforce the results of customary arbitration.
Types of Arbitration
Arbitration between states are not usually concerned with purely commercial disputes.
However, the practice followed in arbitration between states has had an important influence on
the evolution of modern practice of international commercial arbitration. States may resort to
arbitration against other states on their own behalf or on behalf of individuals to whom they
are prepared to extend diplomatic protection. The Permanent Court of Arbitration (PCA) was
established to resolve disputes between sovereign states. The Conference of 1899 drew up the
Convention for the Pacific Settlement of International Disputes, which established a Permanent
Court of Arbitration at The Hague. It was the intention of the framers that states, which were
in disputes, would refer their disputes to arbitration, if diplomacy failed to produce an
acceptable settlement.
In international arena, the emphasis has shifted from disputes between states alone to disputes
between sovereign states or states entities on the one hand and private parties (often
transnational corporations) on the other hands. The involvement of sovereign states in area of
trade and commerce, which were once left in the hands of private corporations, explains the
preeminent role for states in arbitration. Two prominent international bodies, which offer
special facilities for the conduct of international commercial arbitrations in which one of the
parties is a state, are the PCA at The Hague and International Centre for Settlement of
Investment Disputes (ICSID) in Washington.
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ICSID was established by the Washington Convention of 1965. It was promoted by the World
Bank to provide legal and multilateral framework for a system for settling investment disputes
that takes into account the interest of both foreign investors and the host states and at the same
time, guarantees a continuous flow of private investment into the developing countries.
A number of claims commissions or claims tribunals, have been established over the last two
centuries to deal with situations where governments have become involved in a series of related
claims. One of the most important in recent times is the Iran – United States Claims Tribunal.
The Tribunal is a ‘hybrid’. Whilst many of the cases concern disputes between the two state
parties and involved questions of public international law, particularly where, for example,
issues of nationalization are included, most of the cases are commercial in the sense that they
arise out of international trading transactions, albeit, a number of them involve one or both of
the state parties.
International commercial arbitrations where neither party is a state are by far the most common.
Such disputes arise between businessmen or corporations in many areas of commercial law,
including importing and exporting, joint ventures, agency agreements, financing, construction
and the myriad of other business activities which make up international commerce.
This type of arbitration may take place between private parties. It may also involve a state or
state entity. They are conducted in accordance with the rules of trade associations often long
established and with their own special procedures. The disputes may turn on the question of
whether a consignment of coffee corresponds with the sample on the basis of which it was
ordered or whether a particular consignment of sugar or cocoa was or was not ordered. This
arbitration will be governed by the rules of the relevant trade association, acting almost like a
medieval guild.
Institutional arbitration and ad hoc arbitration are distinct methods of proceedings. The parties
to ad hoc arbitration establish their own rules of procedure, which may be made to fit the facts
of the dispute between them, whereas the parties to an institutional arbitration must conduct
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the arbitration in accordance with the procedural rules of the particular institution concerned.
Basically, the choice between ad hoc and institutional arbitration would only be made once a
dispute had arisen.
Arbitration clause
An arbitration clause is a written submission agreed by the parties to the contract and, like other
written submissions, it must be construed according to its language and in the light of the
circumstances in which it is made. The mere fact that a dispute is of a nature eminently suitable
for trial in a court is not a sufficient ground for refusing to give effect to what the parties have,
by contract, expressly agreed to so long as an arbitration clause is retained in a contract that is
valid and the dispute is within the contemplation of the clause, the court ought to give due
regard to the voluntary contract of the parties by enforcing the arbitration clause as agreed to
by them.
Conciliation and mediation differ from arbitration in that they do not result in a binding or
enforceable award. A mediator cannot compel the parties to reach a settlement; and a
conciliator has no power to impose his award on the parties. If the parties are seeking a decision
on their dispute, as opposed to a negotiated settlement, then mediation or conciliation is not for
them. Parties may try mediation or conciliation first and then, if this fails, resort to arbitration,
though this may make the process expensive and long-drawn.
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arbitration. They have been in the settlement of disputes between states and they have
increasingly becoming the favourite method of resolving disputes in China, Japan and other
parts of Asia.
1. Cost
The cost of resolving a dispute depends largely upon its nature, the complications, any special
skills needed, the amount at stake and above all, how long it takes. Usually, arbitration is
usually less expensive. However, it must also be noted that is not also necessarily a cheaper
method of resolving disputes than litigation. First, the fees and expenses of the arbitrators must
be paid by the parties. Secondly, it may be necessary to pay the administrative fees and
expenses of an arbitral institution and these too can be substantial particularly when they are
assessed by reference to the amounts in dispute. Lastly, rooms for meeting and the hearings
may be hired rather than making use of the public facilities of the courts.
2. Lack Of Publicity
Businessmen are always enamoured by the confidentiality. They prefer private resolution of
their problems instead of exposure to machinery available in the glare of regular courts where
inquisitive journalists and trade competitors could hardly be excluded. Confidentiality may be
to protect an invention or know-how. At an arbitration hearing, nobody except the parties to
the disputes are entitled to be present.
3. Speed
Arbitrations normally take less time than court proceedings though international cases with
three arbitrators can be very lengthy. A competent arbitrators may bring matters to a hearing
very quickly though not always. In the business world, time is money. The vexatious delays in
litigation, the interruptions caused by recurrent consultations and legal hearings, adjournments,
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and indeed the wonderful opportunities of procrastination are inimical to the efficacious and
speedy pursuit of business activities.
4. Technical Expertise
It has long been realised that normal court procedures are not suited to very complicated
disputes. An arbitrator is normally selected because of his expert knowledge of the
technicalities of the particular trade in which the dispute has arisen. For example, arbitrator for
a construction contracts. High Courts Judges, on the other hand, deal with such a wide variety
of cases that they can hardly be said to possess expertise of a scientific, technical or economic
nature except by accident. In common law countries, a judge sitting in a superior court with
unlimited jurisdiction, for example, High Court of Nigeria, can deal with any matter.
5. Convenience
While the courts endeavour to meet the convenience of the parties so far they reasonably can,
the emphasis in arbitrations is rather different. There, the convenience of the parties is normally
paramount in considering administrative questions of whatever kind. This can extend to the
taking of evidence as well as the timing and ‘situs’ of the hearing. As part of the convenience
of arbitration, the parties may choose the language or languages to be used in the arbitral
proceedings. They can also choose the law, both substantive and procedural, applicable to the
contract and the arbitrators must abide by it.
The formality as to dress and the right to appear (particularly in the U.K and Nigeria) are absent
in arbitration. A party can represent himself or be represented by anybody he chooses as his
agent, whether legally qualified or not. Lawyers have no exclusive right of audience before an
arbitral panel. As a non-lawyer you can conduct your case. Arbitrators are not guilty of
misconduct if they accept evidence not in accordance with the strict rules of the court or do not
require document to be proved with the strictness required by the law in judicial proceedings.
Much more, the parties and arbitrators have the fundamental freedom to agree on how their
arbitration should be carried out. However, this is not absolute, in that they are still subject to
the principles of ‘audi alteram partem’ and contradiction.
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Arbitration provides a means of resolving disputes, which occur while contract performance is
proceeding in a relatively amicable settling. Arbitral proceedings are, therefore, less disruptive
of business relations. Basically, commercial men prefer the conduct of formal hearing in an
inquisitorial manner to the usual adversarial procedure used in the courts.
8. International Settlement
Arbitration is often essential for the settlement of international commercial disputes. One of
the parties is often not willing to submit to the jurisdiction of a court in the country of the other
party for fear of being at a disadvantage. A neutral forum is then essential and arbitration in a
third country offers the solution.
It is claimed that arbitrators in international arbitration are not bound by a specific legal system,
but that they may base their feelings also on “equity”, “general principles of law”, or “lex
mercatoria”. However, these vague criteria leave the arbitrators a large discretion. It therefore
seems better for parties to submit an international commercial contract to a specific national
legal system. The arbitrators must then, in principle, apply that law and so a great source of
uncertainty has been avoided.
The arbitration proceedings are not required to be conducted in the language of the seat, so
international commercial disputes may be settled in any language selected by the parties as the
most appropriate. The proceedings may even be conducted in more than one language, if
necessary, with the assistance of simultaneous translation.
9. Enforcement Abroad
It can be difficult to enforce a court judgement abroad when there is no convention regulating
the enforcement and when only the provisions of the general law are available. In many cases
the whole court procedure on the merits must be replaced in order to get enforcement.
An award, on the other hand, is generally easier to enforce abroad than a court decision: first
of all, the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards 1985 applies to enforcement in some 80 countries; further European Convention On
International Commercial Arbitration is applicable between twenty countries; finally, there
are also some bilateral conventions that regulates the enforcement of arbitral awards.
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Disadvantages
1. Costs
The costs of court procedures are more likely to be less than the cost of arbitration. Judges are
officers of the state and exercise their jurisdiction in the interest of society. Courts are not paid
by the parties. The costs of the judicial are limited to the summons, the listing of the case, court
fees and registration costs.
Arbitration is usually more expensive since parties generally have to pay the arbitrators for
their services. Arbitrators can be paid on a time basis: they are compensated for the time spent
on the arbitration. This is the most important criterion in Anglo-American arbitration.
Sometimes, the importance of the dispute determines the remuneration: in International
Chamber of Commerce arbitration, for instance, the arbitrators are to a large extent paid
according to the monetary value of the claim. (Parties therefore should not exaggerate their
claim in ICC arbitration and thereby avoid excessive fees for the arbitrators). For small dispute
the cost of arbitration is nevertheless relatively expensive. To reduce costs, small claims should
not be submitted to three arbitrators.
Yet, the relatively higher costs of arbitration proceedings are partly compensated by the speed
and informal character of the proceedings, which in turn reduce the lawyers’ fees. Moreover,
the parties can defend their cases without a lawyer. Arbitration costs are further reduced by the
opportunity for an amicable settlement and the appointment of expert arbitrators. Finally,
registration costs are often not required for arbitration awards, unlike judicial decisions.
2. Judicial Confirmation
Arbitration only works efficiently when the arbitrators actually solve a dispute. It is a fact that
arbitration awards are generally executed voluntarily. According to reports, 90 percent of the
ICC awards are honoured by the losing party without any problems. However, there is always
a risk if a losing party refuses to abide or applies for nullity of the arbitral award (in that case
a court procedure must decide on the enforcement of the annulment of the award). Generally,
however, enforcement or annulment proceedings have a limited scope and courts only examine
the award and the proceedings to a limited extent.
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The basis for arbitration is an agreement between parties. Therefore, the award does not bind
parties, although it is conceivable that parties, who are not party to the original arbitration
clause, (for instance, as a result of a third party clause, assignment of the agreement or take-
over of the business of the original party). Thus, the holder of a bill of lading, for instance, may
be bound by an arbitration clause, signed by the sender and the carrier. It is also conceivable
that enterprises in a group are bound by an arbitration clause signed by one company of the
group when these enterprises have given effect to the contract containing the clause.
Moreover, third parties (inter alia, banks, export insurance companies) may be contractually
bound to recognise the arbitration award against their client as a matter that influences their
contractual obligations. In this scenario, the third party will often participate in the arbitration
behind the scenes, since their money will be ultimately affected.
4. Consolidation of Actions
Another perceived drawback of the arbitral process lies in the fact that, in general, it is not
possible to bring multi-party disputes together before the same arbitral tribunal. Unlike a
court of law, an arbitral tribunal generally has no power to order consolidation of actions.
There are many cases in which at least one of the parties to an arbitration is content that
this should be so, since the intervention of third parties is not always welcome; but leaving
such cases aside, an arbitral tribunal cannot usually order consolidation of actions even if
this would seem to be necessary or desirable in the interests of justice. In court proceedings,
all the relevant parties would usually be joined in one action.
5. Limited Powers
Another major weakness of the arbitral process is the limited powers, which the arbitral tribunal
may exercise. Indeed, an arbitral tribunal must depend on its full effectiveness upon an
underlying national system of law. Powers possessed by arbitrators, whilst generally adequate
for the purpose of resolving the matters in dispute, fall short of those conferred upon a court of
law. For example, the power to require the attendance of witnesses under penalty of fine or
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imprisonment or to enforce awards by the attachment of bank account or the sequestration of
assets, are powers which form part of the prerogative of the state.
They are not powers which any state is likely to delegate to a private arbitral tribunal, however
eminent or well intentioned that arbitral tribunal may be. In practice, if it becomes necessary
for an arbitral tribunal to take coercive action in order to deal properly with the case before it,
such action must usually be taken indirectly, through the machinery of the local courts, rather
than directly, as a judge himself can do.
In purely domestic disputes, the debate as to whether to arbitrate or litigate may be finely
balanced; in the final analysis, much may depend upon the circumstances of each particular
case. Where the dispute is set in an international context, however, the balance comes down
firmly in favour of arbitration. In a domestic context, parties who are looking for a binding
decision on a dispute will usually have a choice between a national court and national
arbitration. In an international context there is no such choice. There is no international court
to deal with international commercial disputes. In effect, the choice is between recourse to
national court and recourse to international arbitration.
A claimant who decides to take court proceedings will (in the absence of any agreed submission
to the jurisdiction of a particular court) usually be obliged to have recourse to the courts of the
defendant’s home country, place of business or residence, with which the claimant is likely to
be unfamiliar. To the claimant, this court will be foreign in the full sense of that word-in nature,
character and origin. The claimant will not be able to brief lawyers of this own nationality, with
whom he is accustomed to deal, but instead will have to use the services of local lawyers. He
may well find that the language of the court is not that of the contract, so that essential
documents and evidence will have to be translated – with all the attendant costs, delay and
opportunities for misunderstanding to which that can give rise. Finally, he may find that the
court is unaccustomed to international commercial transactions and that its law and practice
are inadequate. When viewed against this background, the prospect of bringing a claim arising
out of an international business transaction before a foreign court is not appealing.
If one of the parties to the contract is a state or state entity, the prospect is likely to be even less
attractive. The private party to the contract will be reluctant to have its dispute submitted to the
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national courts of the state party. The private party will usually have little or no knowledge of
the law and practice of that court; and will be afraid of encountering judges predisposed to find
in favour of the government to which they owe their appointment. The state (or state entity)
concerned, for its part, will not wish to submit to the national courts of the private party; indeed,
it will probably object to submitting to the jurisdiction of any foreign court.
In situations of this kind, recourse to international arbitration in a convenient and neutral forum
is generally seen as more acceptable than recourse to the courts, as a way of solving any dispute,
which cannot be settled by negotiations.
The common law principles of arbitration in South Africa are inherited from the Roman-Dutch
law. Voet describes the reasons for the development of arbitration as follows:
The reason being, so it has been said, that some persons are frightened of the heavy
expense of law suits, the din of legal proceedings, their harassing labours and pernicious
delays, and finally the burdensome and weary waiting for the certainty of law.
The English Arbitration Act of 1889 formed the model for the arbitration laws that followed in
the Cape, Natal and the Transvaal, but not in the Orange Free State, where the common law
was followed until 1965. The Arbitration Act of 1965 consolidated and repealed all prior
legislation, but does not expressly set aside the Roman-Dutch law.
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The Arbitration Act only regulates written arbitration agreements, with the result that
arbitration agreements not in writing are still governed by the Roman-Dutch common law.
Case law
In terms of the state decisis rule judges are bound by pervious decisions on the same point of
law. They may not contradict previous decisions made by courts that are superior to their own.
In addition, where the legislation is similar to foreign legislation on the same subject, the
foreign judgments have strong persuasive influence. Because the Arbitration Act is based on
the English Arbitration Act 1950, decisions by English judges in the field of arbitration are
often used as a point of reference.
The Constitution
The Bill of Rights contained in the Constitution provides that everyone has the right to access
a court to resolve a dispute.
Everyone has the right to have any dispute that can be resolved by the application of
law decided in a fair and public hearing before a court or, where appropriate, another
independent and impartial tribunal or forum.
The Arbitration Act (the Act) came into effect on 14 April 1965. It consolidated and repealed
all prior legislation. The Act was greatly influenced by the English Arbitration Acts of 1889
and 1950 respectively.
The provisions of the Act apply to any arbitration in terms of an arbitration agreement to which
the state is a party, except in the event of arbitration between the state and the government of a
foreign country.
In addition, the provisions of the Act apply to every arbitration under any law that refers to the
resolution of disputes by way of arbitration, except if such other law specifically provides
otherwise.
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The (South African) Recognition and Enforcement of Foreign Arbitral Awards
Act.
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention) was adopted in 1958. South Africa ratified the Convention in 1976 and passed
The (South African) Recognition and Enforcement of Foreign Arbitral Awards Act (the
Recognition Act) in 1977 to give effect to the convention.
The Recognition Act provides that any foreign arbitration award may be made an order of court
by any High Court in South Africa. Once a foreign arbitration award has been made an order
of court in South Africa, it may be enforced in the same manner as any judgment or order to
the same effect.
A court may refuse to make a foreign arbitration award an order of court of the subject matter
may not be arbitrated in South Africa, or if enforcement of the award would be contrary to
public policy. In addition, a party against whom enforcement of a foreign arbitration award is
sought may raise certain defences:
That the parties did not have the capacity to contract under the law applicable to them.
That the arbitration agreement is invalid under the law to which the parties have
subjected it.
That the arbitration agreement is invalid in the country in which the award was made.
That the party did not receive the required notice of the arbitration or was not able to
present his or her case.
That the award deals with a dispute not contemplated by or falling within the provisions
of the arbitration agreement.
That the award contains decisions on matters falling beyond the scope of the reference
to arbitration.
The constitution of the arbitration tribunal or the arbitration proceedings were not in
accordance with the arbitration agreement or with the law of the country in which the
arbitration took place.
The award has not yet become binding on the parties, or has been set aside or suspended
in the country in which, or under the law of which, the award was made.
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ARBITRATION IN TERMS OF THE COMPANIES ACT
The Companies Act provides for various alternative dispute resolution mechanisms to resolve
corporate disputes, including: the use of alternative dispute resolution mechanisms;
adjudication by the Companies Tribunal; and filing a complaint with the Companies
Commission. One of the dispute resolution mechanisms available is arbitration by the
Companies Tribunal.
A person who would be entitled to apply for relief, or file a complaint in terms of the
Companies Act, may refer the matter to arbitration by the Companies Tribunal. It is not clear
from the wording of the Companies Act whether the other party would be obliged to submit to
arbitration, but presumably the consent of the other party would be needed.
Neither the Companies Act nor the Companies Regulations determines the procedure to be
followed when the Tribunal acts as arbitrator. It seems from the Companies Act that the
chairperson of the Companies Tribunal must assign such arbitration to a panel of three
members of the Companies Tribunal.
The Guidelines provide that the High Court rules will apply in cases of arbitration by the
Tribunal. A Tribunal member may, however, allow deviation from the formalities of the High
Court rules depending on the nature and circumstances of the matter.
It is regrettable that the Guidelines provide, as a default rule, for the High Court rules to apply
in arbitration cases heard by the Tribunal. It was the intent of the legislature to provide for a
less formal system of dispute resolution. By applying the High Court rules to arbitrations, the
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process runs the risk of becoming cumbersome, expensive and of mimicking a court procedure
– precisely not what the legislature intended.
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