Tactical reviews of arbitral awards could undermine South Africa as a seat of arbitration

These tactical reviews have added to the backlog in cases the courts are facing, and caused delays in executing arbitral awards, potentially undermining South Africa’s appeal as a seat of arbitration.  

Arbitral awards are often final and binding and as such it is crucial that parties have a right of recourse against an arbitrator which has either misconducted himself, is guilty of conducting gross irregularity or improperly granted an award. South Africa’s Arbitration Act 42 of 1965 provides these limited grounds for parties to challenge an arbitration award.

Case law, set by the South Africa’s Supreme Court of Appeal (SCA) in the 2006 case Telecordia Technologies v Telkom SA (66-page / 358KB PDF), has made it clear that the court is not to consider whether the arbitrator erred in his or her award, as the court noted in its judgment that an arbitrator “has the right to be wrong”. The purpose of providing the limited grounds for challenging an arbitration award is to protect the procedural fairness of the arbitral process and ensure that each party to the arbitral process has the right to present its case.

Despite these limited grounds, a surge of review applications concerning arbitration awards has hit the South African courts. A number of these appear to be on tactical grounds, where disgruntled parties aim to disrupt the arbitral process or seek to informally appeal a final and binding arbitral award that they are dissatisfied with in the courts.

Delays in enforcing arbitration awards

One of the effects of these review applications is that the enforcement of the underlying arbitral awards is delayed due to the lengthy court procedures associated with these reviews.

A party seeking to challenge an arbitral award in South Africa must file a review application with the relevant court within six weeks of the publication of the award. Once the review application has been filed, the matter proceeds by way of application proceedings which require the parties to file affidavits at various stages of the proceedings in support of their positions. This process alone may take between four and six months. Naturally, this could cause a substantial delay for the successful party in the arbitration proceedings to execute the arbitral award in its favour.

Contributing to this delay is the backlog in cases that the courts are facing. In 2022, the Reserved Judgment Report for the Chief Justice indicated that 181 outstanding court judgements had been reserved for at least six months. Although not all of these will be review applications, the impact of this is clear in the context of arbitral awards, as enforcement could be delayed by up to a year, if not more, after the award had been published.

The court has taken positive steps in alleviating the backlog of outstanding cases, by appointing more acting judges from the pool of counsel available in South Africa. This alleviation of the backlog may go some way to addressing the problem of tactical reviews as these could then be dealt with in a shorter time period. This, however, will not prevent reviews of this nature from continuing.

Further frustration to the dispute resolution process

This continued misuse of review applications can not only cause delays in the resolution of disputes, but also force parties to incur further legal costs in finalising their claims.

A court’s decision in a review application does not necessarily mean the end of a matter.  Dissatisfied parties could frustrate the finalisation of the matter further through various avenues. This includes appealing the court a quo’s decision, which if granted results in a further exchange of papers spanning a few months, culminating in an appeal hearing either before the full bench of the High Court, the SCA or even the Constitutional Court.

Where an application for leave to appeal is not granted, a disgruntled party may use the procedures available in section 17(2) of the Superior Courts Act 10 of 2013. This allows the party to petition the SCA for leave to appeal to be granted and, in the event that the petition is denied, to request the president of the SCA, in terms of Section 17(2)(f) of the Superior Courts Act, to reconsider such application for leave. As commonly seen in practice given the stringent threshold, petitions are often ultimately refused.

Challenging arbitration awards in courts also undermines one of the most important benefits of arbitration – the confidentiality that it offers. Review applications often present a platform for the parties’ papers to be placed into the public domain. In South Africa, as in many other jurisdictions, construction disputes, which are generally resolved through arbitration, are inherently complex in nature. Arbitration allows the parties to appoint a suitably qualified professional to decide the dispute between the parties, with the intention of having the dispute resolved privately and quickly. These tactical review applications are circumventing the confidentiality of arbitration. Further, the high number of arbitral awards being taken on review could create a risk of a perception being formed that South Africa is an unfavorable seat of arbitration in the future.

Punitive cost order for misuses

While review applications remain an important tool for parties to set aside arbitral awards in instances of misconduct or gross irregularity, the continued misuse of review applications seriously undermines the benefits in using arbitration for disputes.

A potential option for the courts is to order harsher costs orders against parties who pursue frivolous review applications for tactical purposes in order to delay and frustrate the enforcement of an arbitral award. This may act as more of a deterrent, as seen in the 2013 case Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd. The court in this case held that the review application brought by the applicant did not meet the grounds listed in section 33 of the Act, namely gross irregularity by the arbitrator. The court also found there were no reasonable prospects of success of the review application succeeding. As a result, the court dismissed the appeal and ordered costs to the appellant.   

As South Africa is reportedly appointing more acting judges to tackle the delays in its court system, there may be a reduction in the time within which these review applications are finalised. This, combined with the threat of a punitive cost order as shown in the Dexgroup case, have the potential to diminish the appeal of bringing tactical reviews and dissuade those who are seeking to use the legal system in order to delay or disrupt the arbitral process.

Co-written by Brendan Whyte and Evaendren Naidoo of Pinsent Masons.