TOOLS OF THE TRADE – MARCH 2022
INTERNATIONAL ARBITRATION
WAIVER OF THE RIGHT TO REVIEW AN ARBITRATION AWARD
by Cassie Badenhorst SC and Penny Bosman[1]
Introduction
Arbitration, particularly in the context of legal disputes between parties in different countries, is the dispute resolution mechanism of choice. International arbitration allows parties to resolve disputes swiftly and in accordance with the applicable international principles of law. One of the greatest attractions of international arbitration is the finality of the award that is granted which, at least in theory, should lead to speedy payment for the claimant.
Parties who successfully engage in international arbitrations and receive awards in their favour, often find themselves bogged down in a quagmire of attempts by the unsuccessful party to avoid making payment. The unsuccessful party might, in an effort to stall making payment of the award, institute review proceedings. This might take place even though the rules applicable to international arbitrations in most jurisdictions, including South Africa, usually provide that, by submitting disputes to international arbitration, parties agree that the award made is final and binding on them and they are deemed to have waived any right to further recourse.
We recently dealt with a review application in the Johannesburg High Court, which was brought by an unsuccessful party to an international arbitration, to set aside an award granted in our clients’ favour. As part of the review application, the applicant sought an order that rule 41(3) of the AFSA International Rules of Arbitration (“the AFSA International Rules”), the predecessor to the current article 33(9), be declared to be contrary to public policy and accordingly void insofar as it constituted a waiver of an unsuccessful party’s rights to bring an application to set aside the award in terms of article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”). The Model Law, which was adopted by UNCITRAL on 21 June 1985, forms part of the South African International Arbitration Act 15 of 2017 (“the International Arbitration Act”) and permits an award to be set aside if it is in conflict with the public policy of South Africa.
Unfortunately the review application was abandoned by the applicant shortly before it was heard and dismissed by the Court. However the application raises interesting questions for consideration. For example, is it possible for parties to agree to such a waiver of the right to further recourse in advance of the outcome of the proceedings by submitting to the rules of an arbitral tribunal, such as AFSA International? Is such a waiver in accordance with public policy and the Constitution of South Africa? Does such a waiver exclude other statutory rights of review which might exist, for example, in terms of the Model Law? In this article, we explore some of these questions within the context of the AFSA International Rules.
Article 33(9) of the AFSA International Rules of Arbitration
Article 33(9) of the AFSA International Rules,[2] which came into effect on 1 June 2021, provides that:
“Every arbitration award granted in an international arbitration shall be final and binding and by submitting a dispute to arbitration under the Rules, the parties undertake to carry out an award immediately and without delay and shall be deemed to have waived their right to any form of recourse insofar as such a waiver can be validly made.”
Article 33(9) clearly embodies the cardinal arbitral principle of the finality of arbitral awards which is well established and entrenched in arbitral proceedings[3] in that it stipulates that arbitral awards are final and binding on the parties and must be carried out by the parties immediately and without delay.
The principle of finality derives from the consensual nature of arbitration proceedings. Parties select the arbitrator as judge both of fact and law and even if the arbitrator errs in the decision at which he arrives, such decision is conclusive and binding on the parties. As stated by Lord Halsbury in Caledonian Railway Co. v Turcan[4] “the arbitrator, whether he has decided rightly or wrongly is supreme. There is no power to review his decision.”
Parties are free to submit their disputes to arbitration rather than to pursue them through the courts however when they do so they sacrifice the opportunity to later submit their dispute to a court of appeal to seek redress based on an erroneous decision by the Court of first instance. The rights of a party to set aside the decision of an arbitrator are severely limited.[5]
It is trite that a party who has entered into an arbitration agreement with the advantage of finality will not be readily absolved from that undertaking.[6] A party who selects to have his dispute resolved by arbitration, with the benefit of the finality of such award, loses his right to recourse to the ordinary court appeal processes except in extremely limited circumstances.[7]
The principle applies all the more in the case of international arbitrations where parties have not only the choice of arbitrator but also the choice of substantive law which will apply, the choice of procedure that will apply and the place where the tribunal will sit.[8] Few international jurisdictions permit any form of appeal on the law or facts from an arbitral award. If a tribunal has jurisdiction, the correct procedures are followed, and the correct formalities are observed, the award – good, bad or indifferent – is final and binding on the parties.[9]
In furtherance of the principle of finality, article 33(9) of the AFSA International Rules also provides that parties to an international arbitration in terms of the AFSA International Rules are deemed to have waived their right to any form of recourse against such award insofar as such a waiver can validly be made. Such recourse includes the right of a party to review the arbitration award.
The AFSA International Rules are aligned with international arbitration law and practice
Article 33(9) of the AFSA International Rules is aligned with international arbitration law and practice. The AFSA International Rules incorporate best practice that is recognised and accepted by the international arbitration community in general. The uniformity of rules between the South African jurisdiction and other jurisdictions throughout the world provides consistency and predictability in the international arbitration community.
One therefore finds the same or similar rule contained in a number of different sets of rules that are adopted by arbitral institutions throughout the world resulting in the development of a “common law” for international arbitrations which is universally accepted, regardless of whether the party arbitrates in London, South Africa or Paris. In addition to providing uniformity, this also makes South Africa an attractive destination for international arbitrations. Some examples of similar provisions which apply in other jurisdictions are the following:
Article 34(6) of the International Chamber of Commerce (ICC) Rules which provides as follows:
“Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties agree to carry out any award without delay and shall be deemed to have waived their right to any form or recourse insofar as such waiver can be validly made.”
Article 30(1) of the International Centre for Dispute Resolution Rules (ICSID) which provides as follows:
“…The parties shall carry out such an award without delay, and absent any agreement otherwise waive irrevocably their right to any form of appeal, review or recourse to any court or other judicial authority, insofar as such waiver can validly be made….”
Rule 26.8 of the Rules of the London Court for International Arbitration (LCIA) which provides as follows:
“Every award (including the reasons for such award) shall be final and binding on the parties. The parties undertake to carry out any award immediately and without delay (subject only to Article 27); and the parties also waive irrevocably their right to any form of appeal, review or recourse to any state court or other legal authority, insofar as any such waiver shall not be prohibited under any applicable law.”
Article 32.1.1 of the 2016 the Singapore International Arbitration Centre (SIAC) Rules which provides as follows:
“Subject to Rule 33 and Schedule 1, by agreeing to arbitration under these Rules, the parties agree that any Award shall be final and binding on the parties from the date it was made, and undertake to carry out the Award immediately and without delay. The parties also irrevocably waive their rights to any form of appeal, review and recourse to any State court or other judicial authority with respect to such Award insofar as such waiver may be validly made.”
Article 34.2 of the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules which states:
“All awards shall be made in writing and shall be final and binding on the parties. The parties carry out all awards without delay.” [Emphasis provided].
Provisions on the same terms as those set out in article 33(9) of the AFSA International Rules are therefore accepted and applied by all the leading international arbitration bodies globally. The waivers contained in many of them are not deemed to be against public policy and capable of being impugned or declared to be void simply because they constitute a waiver of a right to further recourse, agreed to by the parties in advance of the outcome of the arbitral proceedings.
What is more, as is clear from the wording of article 33(9), there is also no basis for a “blanket” declaration of invalidity of this provision because article 33(9) (and rule 41(3) before it) only constitutes a waiver of the right of recourse “insofar as such waiver may be validly made.” Therefore, to the extent that that condition is not met (i.e. where state law does not permit such a waiver) such a waiver will not be permissible.
In our view, a declaration of voidness of article 33(9) (as was sought in the review that we recently dealt with) would have a very serious deleterious effect on the status of South Africa as an investment destination and would lay waste to hard work over many years to achieve the current favourable position for South Africa in the international arbitration space.
Can a party validly waive its right to further recourse in terms of South African law?
A party who waives a right extinguishes that right and any concomitant obligation. Whether a waiver exists is a question of fact.[10]
In Lunfuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another[11] the Constitutional Court, per Kroon AJ (Jafta AJ and Nkabinde J concurring) summarised the common law principles of waiver as follows:[12]
“… Waiver is first and foremost a matter of intention; the test to determine intention to waive is objective, the alleged intention being judged by its outward manifestations adjudicated from the perspective of the other party, as a reasonable person. Our courts take cognisance of the fact that persons do not as a rule lightly abandon their rights. Waiver is not presumed; it must be alleged and proved; not only must the acts allegedly constituting the waiver be shown to have occurred, but it must also appear clearly and unequivocally from those facts or otherwise that there was an intention to waive. The onus is strictly on the party asserting waiver; it must be shown that the other party with full knowledge of the right decided to abandon it, whether expressly or by conduct plainly inconsistent with the intention to enforce it. Waiver is a question of fact and is difficult to establish.”
While these common law principles of waiver apply when a party seeks to assert or rely on the fact that another party has waived a right or abandoned a concomitant obligation, it is interesting that article 33(9) refers to a “deemed waiver”. In other words, by agreeing to the provisions of the AFSA International Rules as the governing principles applicable to an international arbitration, parties are “deemed to have waived” their right to future recourse. We suggest that given this wording, it is not necessary to establish (or enquire into) the intention of a party in doing so as would otherwise be the case in attempting to establish the existence of a waiver.
Waiver of a right to review, in anticipation of the commencement and outcome of arbitral proceedings, is permissible and in line with public policy. It provides parties with certainty and finality in the arbitration proceedings. Parties to contractual arrangements and arbitration agreements are therefore at liberty to agree to an anticipatory waiver of certain rights before the outcome of the proceedings is known. In these circumstances, knowing the effect of the waiver, a party can elect to agree to abandon certain remedies in advance of and without knowing the outcome of proceedings. This is not against public policy.
Section 34 of the Constitution guarantees every person the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum. In Total Support Management (Pty) Ltd and Another v Diversified Health Systems,[13] the Supreme Court of Appeal considered whether the fairness rights set out in section 34 of the Constitution apply to consensual, private arbitrations.
While the Supreme Court of Appeal did not decide the point conclusively, it expressed the view that section 34 of the Constitution may well not be applicable to private arbitrations.[14] The Court concluded however that even if section 34 was applicable to private arbitrations, there was nothing to prevent the parties from themselves defining what was fair in the resolution of their disputes.[15] The Court was clear that the fairness requirement (embodied in section 34 of the Constitution) was satisfied where parties who resort to arbitration agree to forego a right of appeal and accept that the well-known and well-established principles governing arbitration will apply. When viewed through the prism of the Bill of Rights, the Court held that no deviation from these principles was justified.
This approach is consonant with the approach in Napier v Barkhuizen[16] where Cameron JA, in referring to Brisley v Drotsky,[17] emphasized that, in appropriate circumstances, the Constitutional norms of dignity and autonomy find expression in the liberty of individuals to regulate their own lives and to engage in contractual arrangements. The Constitution requires individuals to employ its values to achieve a balance that strikes down unacceptable “freedom to contract” while seeking to permit individuals the dignity and autonomy of regulating their own lives. Intruding on apparently voluntarily concluded arrangements is a step that judges should countenance with care, particularly when it requires them to impose their individual conceptions of fairness and justice on parties’ individual arrangements.[18]
The fairness rights of parties in terms of section 34 of the Constitution may in any event be waived unless the waiver is contrary to some other constitutional principle or otherwise contra bonos mores. By agreeing to arbitration, parties waive their rights pro tanto. It has been accepted by the European Court of Human Rights that the waiver of such rights is not inimical to a fair trial guarantee which is similar to that in section 34 of the Constitution.[19]
The conclusion that stands to be drawn from the above, in our submission, is that the deemed waiver by parties of their rights to take further recourse against an arbitration award, as set out in article 33(9) (and rule 41(3) before it) is a waiver “which can be validly made” by parties to international arbitration proceedings in terms of the AFSA International Rules. It is not contrary to public policy or the provisions of the Constitution. There is accordingly no basis for this provision to be declared to be void or to be struck down. For a court to declare this provision to be void would be a step backwards with serious negative effect.
Does the International Arbitration Act and the Model Law provide parties with further recourse against an award?
The International Arbitration Act was promulgated to incorporate the Model Law adopted by UNCITRAL in terms of the New York Convention into South African law. Section 6 of the Act makes the Model Law, which is contained within schedule 1 to the Act, applicable within the Republic of South Africa. It was also pursuant to the coming into force of the International Arbitration Act and the recognition of the application of the Model Law to commercial arbitrations in South Africa, that the AFSA International Rules were amended to bring them in line with international arbitration practice and the Model Law.
Article 34 of the Model Law (chapter 7 of schedule 1 to the Act) sets out the circumstances under which an arbitral award may be set aside by a court with the necessary jurisdiction. It is noteworthy that the provisions of article 34 are described as the “exclusive recourse” against an arbitral award. Therefore no grounds exist outside of article 34, which can be relied on by a party to challenge an award.
Article 34(1) provides that recourse to a court against an arbitral award may only be made by an application for setting aside in accordance with articles 34(2) and 34(3) of the Model Law. The grounds for the setting aside of an arbitral award are very limited. Aside from “technical” reasons for the setting aside of the award, which are set out in article 34(2)(a)(i) to (iv) of the Model Law,[20] in terms of articles 34(2)(b)(i) and (ii) of the Model Law, a Court may set aside an arbitral award only if it finds that:
“(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the Republic; or
(ii) the award is in conflict with the public policy of the Republic.”
Accordingly, unless there is a technical defect in the award, which would in any event justify its setting aside, an award may only be set aside in terms of section 34 of the Model Law if it is in conflict with the public policy of South Africa.
What is public policy?
Public policy refers to the fundamental notions of honesty, fairness and justice that underpin our legal system. It is a notoriously difficult concept to give content to. In Sasfin (Pty) Ltd v Beukes,[21] Smalberger J.A., defined public policy as “an expression of vague import”. It includes an act which is contrary to the interests of the community, the common law or the moral sense of the community. Agreements which are clearly inimical to the interests of the community, whether they are contrary to law or morality, or run counter to social or economic expedience, will accordingly, on the grounds of public policy, not be enforced
Smalberger J.A. went on to say that it is for Courts to determine what is meant by the term public policy or what is considered to be against good morals in any given case and that such power should not be hastily or rashly exercised. It should be exercised sparingly and only in the clearest of cases, lest uncertainty as to the validity of contracts will result from an arbitrary and indiscriminate use of the power. This is particularly so when individual judges may attempt to bring their own perceptions of the moral sense of the community to bear.
Article 34(5) of the Model Law gives some guidance in relation to what is meant by the term “public policy” for purposes of Article 34(2)(b)(ii) and states that an award will be declared to be in conflict with the public policy of the Republic if it is in breach of the arbitral tribunal’s duty to act fairly in connection with the making of the award causing substantial injustice to the applicant or where the award was induced or affected by fraud or corruption.
The aforementioned provision was added to the Model Law upon the promulgation of the International Arbitration Act after the recommendation of the South African Law Commission to ensure the review on public policy grounds as envisaged in article 34(2)(b)(ii) included “serious procedural irregularities” and to ensure that the arbitrator’s duty to act fairly was interpreted within the context of a “right to a fair trial”.[22] It is therefore within this procedural context that the provisions of article 34(2)(b)(ii) should be interpreted.
In Seton Company[23] supra, the court reaffirmed the principle of the finality of arbitration awards and cautioned against an approach which involved the court engaging in a retrial of the issues in order to assess whether or not the award went against public policy. In the Seton Company case, the court had regard to two English decisions namely Soleimany v Soleimany[24] and Westacre Investments Inc v Jugoimport SDPR Holdings and others[25] and held that the court will refuse to recognise an arbitral award where on the face of the award and the arbitration agreement, it is clear that the award is contrary to public policy without the need to consider extraneous evidence, for example, where it is clear that the arbitration was based on an illegal contract.
Internationally, many states take the same restrictive approach to the application of public policy as a ground on which an arbitral award will be set aside.[26]The English Courts have held, with reference to the English Arbitration Act 1996, that the application of public policy as a basis for the setting aside of an arbitration award would only be available in extreme cases and that the Court would not be concerned with the correctness or otherwise of the award. Public policy under English law can only be invoked where the alleged conduct was akin to something “unconscionable or reprehensible” and where the applicant had suffered “substantial injustice”.[27]
The French Cour De Cassation held in SNF SAS v Cytec Industries BV (Holland)[28] that it would not refuse the enforcement of an arbitral award based on public policy unless obvious signs of breach of public policy were demonstrated saying that such breach must be “flagrant, actual and concrete”. The Indian Supreme Court held in ONGW v Saw Pipes Ltd[29] that an arbitral award would only be annulled on public policy grounds if it was “contrary to the fundamental policy of Indian law and the interests of India, or justice and morality.”
There is universal consensus throughout international jurisdictions for caution in the adoption of public policy as a basis to set aside an arbitral award alternatively to decline to enforce it. As Burrough J said in Richardson v Mellish:[30]
“[Public policy is] a very unruly horse, and when you get astride it you never know where it will carry you. It may lead you from sound law. It is never argued at all, but when other points fail.”
Conclusion
In conclusion then, it is clear that article 33(9) which is in line with its international counter-parts contains a deemed waiver of the right of a party to further recourse in respect of an arbitral award. Such deemed waiver is not, in our view, contrary to public policy and does not offend against the Constitution of South Africa. It is a waiver which can be validly made in terms of South African law and is applicable to parties who adopt the AFSA International Rules in resolving their disputes. The grounds for the setting aside of an award in terms of the Model Law are also very limited. Parties and judges should heed the warning to be slow to sit astride the unruly horse of public policy.
[1] Cassie and Penny are practising members of the Johannesburg Bar.
[2] Article 33(9) replaced the previous rule 41(3) of the AFSA International Rules which provided that by submitting a dispute to arbitration in terms of the AFSA International Rules, the parties undertook to carry out any award immediately and without delay and to waive irrevocably their rights to any form of appeal, review, or recourse to any state court or other judicial authority, insofar as such waiver could be validly made.
[3] Dickenson and Brown v Fisher’s Executors 1915 AD 166 at page 174
[4] 1898 AC 256
[5] Benjamin v Sobac South African Building Society and Construction (Pty) Ltd [1989] 4 All SA 827 (C) at 856
[6] Metallurgical & Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 2 SA 388 (W) at 391
[7] Clark v African Guarantee and Indemnity Co Ltd 1915 CPD 68 at 77; Kolber v Sourcecom Solutions (Pty) Ltd; Sourcecom Technology Solutions (Pty) Ltd v Kolber 2001 2 SA 1097 (C) at 1111E-1112B
[8] Seton Company v Silveroak Industries (Pty) Ltd [2000] JOL 5998 (T)
[9] Redfern & Hunter, Law of Practice of International Commercial Arbitration, 6th Ed, 10.64
[10] Laws v Rutherford 1924 AD 261
[11] 2009 (4) SA 529 SA (CC)
[12] at [81]
[13] 2002 (2) SA 661 (SCA) para [28]
[14] This approach was endorsed by the minority judgment of the Constitutional Court in Lunfuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 supra per O’Regan ADCJ (Langa, CJ, Mokgoro J, Van der Westhuizen J and Yacoob, J concurring), the majority finding that section 34 did apply to private arbitrations.
[15] This approach was similarly confirmed in Telcordia Technologies Inc v Telkom SA Ltd [2006] 2 All SA 469 (SCA).
[16] [2006] 2 All SA 469 (SCA)
[17] 2002 (4) SA 1 (SCA) at [94] – [95]
[18] at [13]
[19] Suovaniemi v Finland ECHR Case No 31737/96 (23 February 1999)
[20] For example, if a party to the arbitration agreement lacks capacity to conclude the agreement or the agreement is not valid in terms of South African law; or there was not proper notice of the appointment of an arbitrator or of the arbitral proceedings or a party was otherwise unable to present his or her case; the award dealt with a dispute falling outside of the scope of the arbitration agreement; or the composition of the tribunal is outside of what was provided for in terms of the arbitration agreement.
[21] [1989] 1 All SA 347 (A) at 350 – 352
[22] South African Law Commission Report, Arbitration: An International Arbitration Act for South Africa, July 1998
[23] This case considered the enforcement of an international arbitral award within the context of the Recognition and Enforcement of Foreign Arbitral Awards 40 of 1977 which was the predecessor of the Act. However section 4(1)(a)(ii) of the Recognition and Enforcement of Foreign Arbitral Awards is the same as article 34(2)(b)(iv) of the Model Law.
[24] 1999 (3) Al ER 847
[25] 1999 (3) All ER 864
[26] Redfern & Hunter supra at 10.84
[27] Redfern & Hunter supra at 10.84; Protech Projects Construction (Pty) Ltd v Al Kharafi & Sons [2005] EWHC 2165 (Comm)
[28] Cour de Cassation, Ch. Civ. 1ere, 4 June 2008; Redfern & Hunter supra at 10.84
[29] (2003) 5 SCC 705 at 727
[30] (1824) 2 Bing 229, at 252, [1824-34] All ER 258 as quoted in Redfern & Hunter supra at 10.87