Comments on the Jurisdiction of Arbitrators
INTRODUCTION
Arbitration is governed in our statute law[1] by the Arbitration Act (the Act)[2] in respect of domestic arbitrations and the International Arbitration Act (the IAA)[3] in respect of international arbitrations.
In a domestic arbitration, section 3 of the Act confirms the enforceability of arbitration agreements and allows for control by the court, in that the court may order that the arbitration agreement be set aside or that a particular dispute shall not be referred to arbitration, or that the arbitration agreement shall cease to have effect with reference to the particular dispute. Where legal proceedings have been instituted any party may apply for a stay of proceedings in terms of section 6 of the Act. [4] In both instances the onus is on the party applying for an order in terms of section 3 or section 6.
In an international arbitration, the IAA provides in section 16 for the recognition and enforcement of arbitration agreements and states that arbitration agreements must be recognised and enforced in South Africa as required by the UNCITRAL Model Law reflected in Schedule 1 to the IAA. Article 8 of the Schedule then provides that a court shall, if so requested by a party, not later than when submitting its first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed.
An arbitrator does not have jurisdiction to entertain matrimonial causes or any matter relating to status.[5]
The agreement to arbitrate must be in writing. No other formalities are prescribed; the agreement need not be signed,[6] need not deal with every aspect of the envisaged arbitration, and can be a stand-alone agreement or an agreement incorporated in another agreement. It may consist of standard ‘terms and conditions’[7] printed on the back of an invoice or quotation, or pasted on a door or wall.[8]
The parties may themselves impose formalities, such as requiring a signed agreement. Where the parties envisage a written agreement signed by them then on the authority of Goldblatt v Fremantle[9] (referring to Voet Commentary on the Pandects 5.1.73) an agreement comes into existence only upon signature.
This article deals primarily with an arbitration agreement incorporated into another agreement, for instance an agreement of sale that provides for arbitration in the event of a dispute arising, rather than an arbitration agreement entered into after a dispute had arisen. Also, for the purposes of this article, no distinction is between a ‘contract’ and an ‘agreement.’ [10]
Any ruling on the applicability or enforceability of an arbitration agreement necessarily involves the interpretation of the agreement. An arbitration clause should be liberally construed. [11]
JURISDICTION
The question of jurisdiction of the arbitrator may arise in different situations, such as –
- Is there a valid written arbitration agreement between the parties?
- If so, does the particular dispute that has arisen fall within the ambit[12] of the arbitration agreement?
The validity of the arbitration agreement
It is submitted that the existence of a valid arbitration clause contained in a larger agreement does not necessarily presuppose the existence of a valid larger agreement. Different scenarios can be distinguished:
The parties entered into a valid agreement to arbitrate, but the main agreement between them is not a binding agreement
Because different requirements are prescribed in law for different agreements, a valid arbitration clause may find itself encapsulated in an invalid agreement.[13] For example, an agreement for the sale of land must, in addition to the essentialia requiring agreement on the thing to be sold and the price to be paid, also comply with section 2(1) of the Alienation of Land Act[14] requiring a written deed of alienation reflecting the signatures of the parties or that of their agents authorised in writing. It is possible that such an agreement may be void for want of compliance with section 2(1) because the parties failed to sign the agreement, or failed to describe the thing sold or the price, yet contain a perfectly valid, written agreement to refer any dispute to arbitration. [15]
In such a case, it is submitted, the arbitration agreement is valid and arbitrator will be in a position to determine whether the agreement complied with section 2(1) or not.[16]
When there is no consensus because the document is itself a forgery
When there was never any consensus,[17] because the document itself is a forgery there can be no agreement at all and, obviously, also no agreement to arbitrate. The party whose signature was forged is simply not a party to the agreement and cannot be held to its terms.
The agreement is void or voidable for other reasons
As Lewis JA said in North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd: [18]
‘If a contract is void from the outset then all of its clauses, including exemption and reference to arbitration clauses, fall with it.’
Thus, where an agreement is induced by fraud, and is therefore voidable at the instance of the aggrieved party, the arbitration clause in such an agreement cannot stand.[19]
This will also be the case for instance when performance in terms of an agreement is not legally permissible, or the agreement is legally inoperative or incapable of being performed, and is therefore void.[20] When an unlicenced party contracted to provide financial services the agreement was held to be void, and an attack on the court’s jurisdiction to entertain a dispute arising out of the void agreement on the basis that the agreement contained a clause providing for international arbitration in Europe was dismissed.[21]
In Canton a party to an alleged arbitration agreement sought an order in the High Court that the other party submit certain disputes to arbitration in terms of an alleged arbitration agreement. The agreement was disputed. The applicant was successful in the court a quo and before the full bench, but on appeal the Supreme Court of Appeal in a majority[22] decision held that the application be remitted to the High Court to determine whether the application should be referred to oral evidence or be dismissed. At issue therefore was the existence of a valid arbitration agreement[23] and the majority of the SCA came to the conclusion that there was a dispute of fact that could not be resolved on the papers while the two earlier courts had decided that the respondent’s version could be rejected on the papers.
On appeal before the SCA the key issue was whether, if the existence of the arbitration agreement[24] was subject to a dispute of fact, there was a basis to find that the parties had agreed to arbitrate on ‘the very existence of the agreement to arbitrate.’ This was labelled the ‘existence dispute.’ The rules made applicable in the alleged agreement are of no assistance in answering this question as the applicability of the rules can only become important once it is found that there indeed is an arbitration agreement.
Different situations can be distinguished:
- When the very existence of the arbitration agreement is in dispute, the issue cannot go to arbitration. [25]
- However, where the dispute has already been referred to an arbitrator the court may leave the question of jurisdiction in the hands of the arbitrator unless the agreement is manifestly void.[26] By doing this the court avoids pre-emptive challenges to the jurisdiction of the arbitrator[27] while retaining ultimate control – the decision of the arbitrator may be challenged in court.
- In such a situation the courts may yet finally decide on jurisdiction when the award is challenged on review or its enforcement is sought.[28]
- The initial decision of the court therefore does not amount to a judgment that the arbitration agreement is valid, only that the decision is left to the arbitrator but subject to control by the court.
- Parties may agree that the arbitrator shall decide disputes as to the validity or enforceability of an arbitration agreement. The arbitration clause may be separate and may be open to the interpretation that the very question of validity shall be decided by the arbitrator.[29] The courts will give effect to such an agreement.[30]
A party is entitled to deny the existence of an arbitration agreement and yet submit to the jurisdiction of the arbitrator to decide that question on the basis that his or her doing so does not imply acquiescence. [31] The court may then finally decide the issue on review or when enforcement is sought. [32]
In a minority judgment Phatshaone AJA held that she would have ordered Canton to submit to arbitration. The learned Judge did not make a finding that the arbitration clause constituted a valid arbitration agreement, but held that the clause was prima facie valid[33] and the parties had in fact acted on the agreement.[34] She left the door open for the arbitrator to rule on the question of his own jurisdiction and for the court to retain control.
With respect to the majority judgment, the reasoning in the minority judgment has much to recommend it. The attorneys acting for the party denying the existence of the arbitration agreement were in possession of the unsigned document relied on by the party seeking to enforce it.[35] The High Court had indeed also found that the agreement containing the arbitration clause had been given effect to by the parties.[36]
RULING ON OWN JURISDICTION
May an arbitral tribunal rule on its own jurisdiction? The grounds upon which jurisdiction is disputed,[37] the wording of the arbitration clause, the rules applied by the parties and thus incorporated contractually, principles of law including the ‘competence–competence’ principle, and the legislation, are relevant in answering this question.
The Act is silent on the question. The positive aspect of the competence–competence principle means that arbitrators are competent to rule on their jurisdiction and are not obliged to await judicial guidance.[381] In the absence of contrary indications in the rules applied by the parties or in their agreement, the tribunal does have the authority in my opinion. [39]
The IAA provides in article 16 of the Model Law that the tribunal ‘may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.’ An arbitration clause forming part of a larger agreement is to be treated as an independent[40] agreement and a decision that the agreement is null and void shall not mean that the arbitration clause is necessarily invalid.
In principle it is possible for the parties to agree (in their written agreement or in the Rules subsequently adopted) that the validity of their agreement is to be determined by the arbitrator.[41]
If the tribunal found that the larger agreement is void, for instance because of non-compliance with formalities as in the sale of land example, it is possible for the arbitrator to find that the arbitration agreement is valid but that the larger agreement is void or voidable.
However, if the agreement was induced by fraud then it may very well be that there was no arbitration agreement in the first place. The question then arises whether the award made, namely that the whole agreement, including the arbitration agreement, was induced by fraud – with the result that there was no binding consensus on the larger agreement or the arbitration agreement – can ever itself be a valid award, as the award itself declares its own existence to be vitiated by the fraud.
Article 24.1 of the Rules for the Conduct of Arbitrations: 2021 Edition (1 November 2021) provides[42] as follows:
‘The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is a nullity shall not automatically invalidate the arbitration clause.’
The use of the word ‘automatically’ is important. In the example of an arbitration clause in an agreement for the sale of land, a finding that the agreement of sale is void for want of compliance with section 2(1) of the Alienation of Land Act the arbitration clause as an independent written agreement is not invalidated; a finding that the whole agreement is void because of fraud it follows that there never was an arbitration agreement.
Similarly, the Commercial Rules of the Arbitration Association of SA (AFSA) provide as follows:
‘10.1.2
In cases where the party cited as defendant disputes that he was a party to the arbitration agreement, or that the arbitration agreement is still valid and binding, or that the claim falls within the terms of the arbitration agreement, (all of which disputes are hereinafter referred to as “jurisdictional disputes“), then (unless the party against whom the jurisdictional dispute is raised, informs the arbitrator that he does not wish to proceed until such dispute has been decided by a court) first decide the jurisdictional disputes ….
…
11.1
The arbitrator shall have the widest discretion and powers allowed by law to ensure the just, expeditious, economical, and final determination of all the disputes raised in the proceedings, including the matter of costs.
11.2
Without detracting from the generality of the aforegoing, the arbitrator shall have the following powers:
…..
11.2.2
to rule on his own jurisdiction, including rulings on any dispute in regard to the existence or validity of the arbitration agreement or the scope thereof.’
Article 23 of the Unadministered Standard and Expedited Rules provides:
‘The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the Arbitration Agreement. For that purpose, an arbitration clause that forms part of an agreement shall be treated as an agreement independent of the other terms of the agreement. A decision by the Arbitral Tribunal that the agreement is a nullity shall not automatically invalidate the arbitration clause.’
The Arbitration Rules of the London Court of International Arbitration (of October 2020) provide in article 23 that the arbitral tribunal shall have the power to rule on its own jurisdiction and authority, including any objection to the existence, validity, effectiveness or scope of the arbitration agreement.
The courts have made it clear that in the absence of a reviewable irregularity in terms of section 33 of the Act they are not prepared to enter into the merits of the dispute between the parties.[43] Effect must be given to the principle of pactum sunt servanda and to a valid arbitration agreement between the parties. This of course presupposes a valid arbitration agreement.
CHALLENGING A RULING OR AWARD BY ARBITRATORS THAT THEY HAVE JURISDICTION
An award may be reviewed and set aside on the limited grounds in section 33 of the Act or article 16 of the Model Law when the IAA is applicable to the arbitration.
However, when a party challenges an arbitrator’s jurisdiction, it follows that such party’s case is that the legislation does not apply.[44] An attack on the award can therefore not be limited to the remedies in the legislation as it is the very applicability of the legislation that is in issue. It is only when the arbitrator does have jurisdiction that the legislation applies.
When the arbitrator wrongly assumes jurisdiction the award will be invalid, and a court will be able to consider the question of jurisdiction de novo. In other words, when the dispute goes to the root of the question whether arbitration is possible in terms of an arbitration agreement, the dissatisfied party is not limited to the grounds of review set out in the legislation – its case is that the legislation is not applicable, and not that the arbitrators erred in exercising their powers.[45] In other words, the objecting party takes aim not at the claim, but the tribunal.[46]
Thus, I submit that when the existence of a valid arbitration agreement is accepted and the arbitrator rules that a specific dispute falls within the four corners of the agreement (or is not premature) then a dissatisfied party’s recourse is limited to the grounds in section 33 of the Arbitration Act, but when the existence of the agreement and the applicability of the Act is in issue, then the dissatisfied party is not bound by the limited grounds for setting aside the decision. Similarly, in an international arbitration the dissatisfied party is not bound by article 16 of the Model Law if there is no arbitration agreement.[47] Its case is that the Model law is not applicable at all.
Adv J Moorcroft
Fellow, Association of Arbitrators (Southern Africa)
October 2022
[1] This article does not deal with oral agreements to arbitrate subject to the common law.
[2] Arbitration Act 42 of 1965 sec 1. Zambia Steel and Building Supplies v James Clarke & Eaton Ltd [1986] 2 Lloyd’s Rep 225 at 229; Fassler, Kamstra & Holmes v Stallion Group of Companies (Pty) Ltd 1992 (3) SA 825 (W) at 828.
[3] International Arbitration Act 15 of 2017 sec 1 read with article 7 of the UNCITRAL (United Nations Commission on International Trade law) Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985, as amended on 7 July 2006 and as adapted in Schedule 1 of the Act. The requirement of writing is met by an agreement expressed in electronic form.
[4] See Universiteit van Stellenbosch v JA Louw (Edms) Bpk 1983 (4) SA 321 (A).
[5] Arbitration Act sec 2, applied to International arbitrations by the International Arbitrations Act sec 4(2).
[6] The pitfalls of an unsigned and disputed document that one party claims to be a written agreement are highlighted by the factual disputes that arose in Canton Trading 17 (Pty) Ltd t/a Cube Architects v Hattingh NO 2022 (4) SA 420 (SCA).
[7] D Butler & E Finsen Arbitration in South Africa law and practice (1993) 39.
[8] The party alleging an arbitration agreement, like any agreement, has the onus to prove the agreement and all its terms. See Pillay v Krishna 1946 AD 946.
[9] Goldblatt v Fremantle 1920 AD 123 at 128-9.
[10] The principles applicable to the interpretation of agreements fall outside the scope of this article and the reader is referred to Glenn Brothers v Commercial General Agency Co Ltd 1905 TS 737, Cassiem v Standard Bank of South Africa Ltd 1930 AD 366, Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA), 2012 (4) SA 593 (SCA), and Unica Iron and Steel (Pty) Ltd and Another v Mirchandani 2016 (2) SA 307 (SCA).
[11] See Zhongji Development Construction Engineering Company Ltd v Kamoto Copper Company SARL 2015 (1) SA 345 (SCA); [2014] ZASCA 160 at para 32 and Fiona Trust Holding Corporation v Privalov [2007] EWCA Civ 20.
[12] An agreement to arbitrate may deal with all possible disputes between the parties or with only some of them.
[13] The concept of separability or severability. See in general Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) at 16B.
[14] Alienation of Land Act 69 of 1981.
[15] The possibility of a valid arbitration clause in an void or voidable agreement was recognised by the SCA in Canton at para 34.
[16] The decision in Hubbard v Cool Ideas 1186 CC 2013 (5) SA 112 (SCA) makes it clear that the courts will not enforce an award that gives effect to an illegal contractual provision. If an arbitrator were to uphold an unsigned ‘agreement’ for the sale of land that does not comply with the Alienation of Land Act the courts will, it is submitted, not enforce it.
[17] See Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd 2016 (1) SA 518 (SCA) and Saambou–Nasionale Bouvereniging v Friedman 1979 (3) SA 978 (A) at 993F. A discussion of consensus in the context of the objective declaration and the reliance theories of contract falls outside the scope of this article.
[18] North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd 2013 (5) SA 1 (SCA) at para 12.
[19] North East at paras 14 and 15 and North West Provincial Government v Tswaing Consulting CC 2007 (4) SA 452 (SCA) at paras 13 and 14.
[20] By virtue of sec 7(1) of the Financial and Advisory Services Act 37 of 2002.
[21] See Weissensee v Stone-Bird Investments (Pty) Ltd and Others [2022] ZAGPJHC 817.
[22] Mocumie JA and Unterhalter AJA, Saldulker and Mathopo JA concurring.
[23] By then of course, three years had elapsed and the perceived benefits of arbitration had been lost.
[24] Referred to in para 22 of the judgment as ‘an agreement … to refer disputes …. to arbitration.’
[25] Para 30 of the Canton judgment, referring to North East at para 12 and Heyman v Darwins Ltd [1942] 1 All ER 337 (HL) at 343F.
[26] Para 35 of the judgment.
[27] Para 36 of the judgment. This is referred to as the ‘competence-competence’ or ‘Kompetenz–Kompetenz’ principle of German origin.
[28] This is the so-called negative aspect of the competence–competence principle referred to in para 35 of the judgment.
[29] Para 34 of the judgment.
[30] Para 28 and 29 of the judgment.
[31] Para 32 of the judgment.
[32] Para 35 of the judgment.
[33] Para 58 of the judgment.
[34] Para 66 of the judgment.
[35] Para 74 of the judgment.
[36] Para 71 of the judgment.
[37] It is submitted that an arbitrator should tread more carefully when the very existence of the agreement is in dispute; when the agreement is not disputed but the question is whether the specific dispute before the arbitrator falls within the four corners of the arbitration agreement the arbitrator is in as good a position as a Court to interpret the agreement.
[38] Para 35 of the judgment.
[39] Compare Radon Projects (Pty) Ltd v NV Properties (Pty) Ltd 2013 (6) SA 345 (SCA) para 26 to 29 and Seabeach Property Investment No 28 (Pty) Ltd v Nunn 2019 JDR 0277 (WCC) para 19.
[40] Severability or separability.
[41] See North East at para 16 and Heyman at 357B – D.
[42] The sixth edition of the Rules provided in rule 12 for the power of the tribunal to rule on its own jurisdiction, as did the 2018 edition in article 23.
[43] See Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA), Lufano Mphaphuli and Associates (Pty) Ltd v Andrews 2009 (4) SA 529 (CC), and Enviroserv Waste Management (Pty) Ltd v Wasteman Group (Pty) Ltd [2012] JOL 28939 (SCA); 2012 JDR 0510 (SCA).
[44] See also Heyman at 343.
[45] Compare D Butler ‘Admissibility of Claims v Jurisdiction’ (2021) in Tools of the Trade https://www.arbitrators.co.za/tools-of-the-trade_admissibility-of-claims-v-jurisdiction_prof-d-butler-june-2021/ (accessed 25 February 2022)
[46] J Paulsson ‘Jurisdiction and Admissibility’ in Global Reflections on International Law, Commerce and Dispute Resolution ICC Publishing 2005, para 77.
[47] Compare Zhongji at para 36 and Radon at para 29 read with Christopher Brown Ltd v Genossenschaft Oesterreichoscher Waldbezitser Holzwirtschaftsbertriebe Registrierte Genossenschaft mit Beschrankter Haftung [1953] 2 All ER 1039 (QB) at 1042.