The limitations of arbitration

17 April 2012

Contacts

Arbitration

Before putting a mass-produced arbitration clause in an agreement or embarking on arbitration, it is as well to remember a few important limitations of that process.

Arbitration has many advantages. The parties have control over the pleadings and the process is confidential. Although the proceeding may be cheaper and quicker than a court case, this is not always true for major disputes. But there are potential disadvantages to guard against.

An arbitrator (including an arbitration appeal tribunal) is bound by the documents stating the claim and the defence. Unlike a court, arbitrators therefore have no inherent power to determine the issues or to grant the parties any relief outside the defined dispute. An arbitration award which strays beyond the stated dispute could result in the award being set aside. The dispute must therefore be fully described.

If you are not satisfied with the award of an arbitrator, there are only limited grounds on which the award can be set aside. That is why parties to major disputes should provide for an arbitration appeal tribunal.

An arbitrator’s award can only be set aside by a court if the arbitrator has been guilty of misconduct, has committed a gross irregularity or exceeded his or her powers or if the award has been improperly obtained.

A mere mistake does not constitute misconduct. If the arbitrator acting in good faith makes an obvious mistake in the analysis of the facts or the law, that is not a ground for setting the decision aside.

Nor does an error of law or fact committed by an arbitrator amount to a grossly irregularity or to the arbitrator exceeding their powers. The fact that a court may disagree with the conclusions arrived at by an arbitrator is of no consequence. Gross irregularity requires irregular conduct that results in the case not being fully and fairly determined. This is a difficult test to meet.

Most arbitration decisions are therefore final and there is unlikely to be any recourse to the courts by the losing party.

The above principles were pointed out in a recent decision of the Supreme Court of Appeal. A dispute that began in 2004 and went through an arbitration, an arbitration appeal, the high court and the appeal court before the issue was finally resolved at great cost by a finding that there was no basis on which to set aside the award.