TOOLS OF THE TRADE – EXERCISING A DISCRETION UNDER SECTION 20 OF THE ARBITRATION ACT: A SUMMARY OF THE RELEVANT CONSIDERATIONS AND GUIDING PRINCIPLES – April 2023

The scenario

  1. Two parties, an organ of state on the one hand and a landowner on the other, submitted to arbitration a dispute concerning the amount of compensation to be paid to the landowner in terms of the Expropriation Act 63 of 1975, following the expropriation of an immovable property for the purposes of building a national road.
  2. The dispute was referred to the Association of Arbitrators (Southern Africa) NPC, which appointed you, a registered member of the South African Council for the Property Valuers Profession, as the arbitrator. You have no legal training.  The parties accepted your appointment.
  3. The arbitration proceedings commenced: pleadings were exchanged, evidence was led, and written argument was submitted. Before you could publish your award, you receive an application from Party A requesting you to state a question of law, which Party A avers arose in the course of the arbitration reference, as a special case for the opinion of the court as contemplated in section 20(1) of the Arbitration Act 42 of 1965 (the Act). Party B is of the view that it would not be appropriate for you to accede to Party A’s request.
  4. You have seen and read section 20 of the Act many times:‘Statement of case for opinion of court or counsel during arbitration proceedings(1)
    An arbitration tribunal may, on the application of any party to the reference and shall, if the court, on the application of any such party, so directs, or if the parties to the reference so agree, at any stage before making a final award state any question of law arising in the course of the reference in the form of a special case for the opinion of the court or for the opinion of counsel.(2)
    An opinion referred to in subsection (1) shall be final and not subject to appeal and shall be binding on the arbitration tribunal and on the parties to the reference.’
  5. However, this is the first time that you have had to deal with section 20 on a practical level, and you are uncertain as to the considerations to be taken into account when faced with such an application, or the salient principles governing the application of the section as a whole.A question of law
  6. The judgment of the court (per Eloff J) in Administrator, Transvaal v Kildrummy Holdings (Pty) Ltd & Another[1] was, for a long time, the leading judgment on section 20.
  7. In Kildrummy the court drew parallels between the Act, and the (now repealed) English Arbitration Act in force at the time, and relied on the English judgment in the matter of Halfdan Grieg & Co A/S v Sterling Coal and Navigation Corporation & Another[2] to adopt the following test[3] with regard to establishing whether a question of law should form the subject matter of a stated case in terms of section 20:
    1. When one party asks an arbitrator to state his or her award in the form of a special case, it is a matter for the arbitrator’s discretion.
    2. If the issues are on matters of fact and not of law, the arbitrator should refuse to state a case.
    3. If the issues do raise a point of law, it depends on what the point of law is. The arbitrator should agree to state a case whenever the facts, as proved or admitted before him or her, give rise to a point of law which fulfils the following three requisites:
      1. The point of law should be real and substantial and as such should be open to serious argument and be appropriate for a decision by a court of law, as distinct from a point of law which is dependent on the special expertise of the arbitrator or umpire;
      2. The point of law should be clear cut and capable of being accurately stated as a point of law, as distinct from the dressing up of a matter of fact as if it were a point of law;
      3. The point of law should be of such importance that the resolution of it is necessary for the proper determination of the case, as opposed to side issues of little importance.
  8. The test adopted in Kildrummy therefore restricted an arbitrator’s discretion. This restriction was explained and justified by the court as follows:
    1. The ultimate say of the court on legal issues is an essential component of arbitration proceedings;[4]
    2. When parties agree to arbitrate, they agree to arbitrate in terms of our law on the assumption that a point of law can in a proper case be referred to the court.[5]
  9. Section 20 first received the attention of the Supreme Court of Appeal (SCA) in Telcordia Technologies Inc v Telkom SA Ltd.[6] The SCA’s judgment (per Harms JA, writing for a unanimous court) introduced a shift in the position enunciated in Kildrummy.
  10. Prior to the judgment in Telcordia, our courts accepted that an arbitrator should be obliged to state a case in terms of section 20, where the three requisites referred to in paragraphs 7.3.1 to 7.3.2 were satisfied. However, this approach was rejected in Telcordia in the following terms:[7]‘The first matter I wish to address is the nature of the arbitrator’s discretion.  Eloff J, in Kildrummy, sought to curtail the general and unrestricted discretion the section gives to the arbitrator.  There is no reason, having regard to the wording of the section, for such an approach.  Rules circumscribing the way any discretion has to be exercised are generally unacceptable.’

    and

    ‘… In other words, I hold that there is no obligation on an arbitrator to state a case if the requirements set out  … are present.  They are important factors to consider but they are not definitive …’[8]

  11. It is therefore clear that even if a point of law arises that is real and substantial, open to serious argument, clear cut, capable of being stated as a point of law, and of such importance that the resolution thereof is necessary for a proper determination of the arbitration, an arbitrator is still not obliged to refer the point of law for the opinion of the court. Although the requirements remain important factors to consider as part of the arbitrator exercising his discretion in terms of section 20, they can merely inform such decision, but they are not by no means determinative of it.[9]
  12. The principles set out in Telcordia, were reaffirmed by the SCA in Road Accident Fund v Cloete N.O. & Others.[10]
  13. In this latter case the SCA explained that:
    1. The purpose of section 20 is to create an exception to the general principle that it is the function of the arbitrator to decide finally all matters referred to him or her, including questions of law;[11] and
    2. it is in the context of the exceptional nature of the deviation from the general principle, that the exercise of any discretion pertaining to a referral in terms of section 20 is to be considered. For this reason, and out of deference to the principle of party autonomy, the court’s powers in terms of section 20 should be sparingly exercised.[12]
  14. For these same reasons, arbitrators should exercise their general and unrestricted discretion cautiously.
  15. It will of course sometimes be difficult to distinguish between issues of law and issues of fact, given that in many inquiries these issues will be intermingled.
  16. The following test, utilised in order to determine whether a question can be categorised as a question of law, was borrowed from Farmer v Cotton’s Trustee[13] and used in Kildrummy:[14]‘When all the material facts are fully found and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment the question is one of law.’
  17. Another useful test is the one adopted in Morrison v Commissioner for Inland Revenue.[15] Some steps in reaching the ultimate conclusion are of general application and would therefore be inferences of law, while others are in their nature necessarily limited to the case under consideration, constituting issues of fact.[16]The question of law should arise in the course of the arbitration
  18. Obviously, a party to an arbitration is not entitled to seek the opinion of the court on the very matters that were referred to arbitration in the first place.[17]
  19. A party also does not have the right to have a hypothetical question stated because it does not in truth properly ‘arise’ in the arbitration proceedings.[18]
  20. It is clear from the wording of section 20 that it can only be relied upon if the legal question arises ‘in the course of’ the arbitration. Where the parties’ agreement was to put a particular question of law to the arbitrator, section 20 cannot be relied upon because ‘it would be futile ever to submit a question of law to an arbitrator’.[19]
  21. Section 20 is therefore not designed so as to enable parties, who have agreed to refer a legal issue to an arbitrator, to ‘renege on their deal’. The parties have chosen their decision-maker for the particular issue and they are bound by their choice.[20]
  22. However, in Telcordia the SCA was at pains to explain that it was not against public policy to agree to the finality of an extra-curial decision on a legal issue, especially where the review rights contained in section 33 of the Act remain available, thereby enabling the courts to retain control over the fairness of the proceedings.[21]
  23. In Road Accident Fund, one of the parties sought a referral in terms of section 20 in order to persuade a court to re-examine a previous judgment of that court, on the same issues, because it was of the view that the previous judgment had been wrongly decided.
  24. The SCA found that it was not only unusual, but also inappropriate, to state the same point for the opinion of another court, in circumstances where the point of law had already been decided by a single judge in the same division, and where there were no conflicting judgments on the point.[22]
  25. The SCA explained that the mere fact that one of the parties sought an opportunity to persuade a court to re-examine a previous judgment and the issues raised in that previous judgment, should not have persuaded the arbitrator to state a question of law for the opinion of the court. Nor should the party have persuaded the court to answer the question as formulated.  The reason for this is that when the parties agreed to have their dispute resolved by arbitration, instead of litigation, they must be assumed to have agreed that it would be decided on the basis of prevailing South African law, including the judgment that the one party seeks to impugn.  If either party had wanted an opportunity to ask a court to review or change the substantive law, for example by reversing a binding precedent, then arbitration was the incorrect procedure to achieve that result.[23]
  26. The SCA therefore, quite understandably, concluded that it would be neither appropriate nor just to use a court’s jurisdiction under section 20(1) to reverse, in a way that is not subject to an appeal, an existing or otherwise binding precedent.[24]The facts should be uncontested or already determined
  27. Before an arbitrator has made the necessary findings of fact, the reference of a point of law to the court will usually be premature.[25]
  28. The test adopted by the court in Kildrummy to establish the requirements for when a question of law should be referred, expressly confirms that it is imperative that all the material facts must have been fully found, prior to the referral of a question of law.[26]
  29. By way of example, it would be premature to launch an application in terms of section 20 when the opinion sought from the court, requires it to interpret a contract concluded between the parties and where evidence of surrounding circumstances still need to be led before the arbitrator on the issue of the construction of the contract.[27]The court is not obliged to state an opinion
  30. Even if an arbitrator agrees that a question of law should be referred to the court for an opinion, which may not be the end of the issue.
  31. The position in our law is that the mere fact that an arbitrator has seen fit to state a question of law for the opinion of the court, it does not oblige the court to furnish such opinion. If the court should consider, for example, that, on a proper analysis the question of law posed, it is irrelevant to the issues in the arbitration, or that the facts recorded in the special case do not enable the law point to be sensibly adjudicated, the court would be justified in declining to decide the point.[28]Aggrieved party’s remedy
  32. Should the arbitrator decide not to refer Party A’s suggested question of law to the court for an opinion, Party A may itself in terms of section 20 approach the court and apply for an order directing the arbitrator to do so.
  33. The court will then have to decide whether or not the arbitrator had erred in the exercise of his or her discretion. If the court were to find that there is no fault with the manner in which the arbitrator exercised his or her discretion, the court cannot order the arbitrator to refer the question of law for a stated case.[29]
  34. If, on the other hand, the court is of the view that the arbitrator did not properly exercise his or her discretion in refusing Party A’s application in terms of section 20, the court may order that the question of law be referred as a stated case on such terms as it may determine.Can you an arbitrator rely on section 20 on his/her own initiative?
  35. An arbitrator cannot, on his or her own initiative, refer a legal question to the court or to counsel in terms of section 20.[30]
  36. The authors, David Butler and Eyvind Finsen, Arbitration in South African Law and Practice, Juta and Co Ltd (1993) point out that a situation could arise where an arbitrator, especially one without legal training, is confronted by a question of law which causes him or her considerable difficulty, and neither party applies for it to be referred to a court or counsel.[31] In such a scenario, the authors suggest the following:
    1. The arbitrator could deal with the situation by drawing his or her difficulty to the attention of both parties and suggest that section 20 should be used.[32]
    2. If neither party responds by applying to the arbitrator to utilise section 20, the arbitrator could, in principle, take the advice of a lawyer on the legal issue in question, provided that the ultimate decision remains that of the arbitrator and not of the lawyer. The arbitrator is obviously not bound by the opinion or the advice given by such a lawyer.[33]
    3. Should the arbitrator elect to take the advice of a lawyer, the authors suggest that it would still be advisable that the parties be made aware of the arbitrator’s intention to seek legal advice of the question and that, in appropriate cases, they should be informed of the advice and invited to comment.[34]

    Guard against delaying tactics

  37. Butler & Finsen, cit.,[35] observe, quite correctly, that in an arbitration of average complexity, where all the parties are legally represented, it will require no great ingenuity to find at least one question of law. This means that section 20 is open to abuse and that an arbitrator would be justified in refusing an application by a party to refer a question of law to the court, in circumstances where it is clear that the application was not bona fide and was made purely for the purposes of delay.
  38. By way of example, Butler & Finsen[36] refer to Government of the Republic of South Africa v Midkon in which the court upheld an arbitrator’s rejection of the government’s application to refer questions of law to the court based on the following facts:
    1. The contractor, Midkon, initially wanted to take the dispute to court, but the government insisted on arbitration, arguing, among other things, that the dispute would not give rise to any difficult questions of law.[37]
    2. In addition, the application was in qualified form, requiring only those questions which the arbitrator would decide against the government, to be referred. The court held that a qualified request of this nature has no place in the context of a consultative case envisaged by section 20.[38]
    3. The government submitted that there were approximately thirty (30) questions of law which merited referral, out of which the court found that possibly only one complied with the relevant criteria.[39]
  39. Clearly, in the above example, the government was not bona fide in its reliance on section 20.
  40. However, Butler & Finsen also caution that an arbitrator should exercise great circumspection in dismissing an application in terms of section 20 based on a lack of bona fides. The reason for this is that a finding by the arbitrator that a party acted in a manner that was not bona fide, possibly could be used subsequently by that party in an attempt to attack the arbitrator’s award, viz., on the basis that the arbitrator had shown him or herself not to be impartial. [40]Conclusion
  41. An arbitrator’s discretion to refer, or not to refer, a question of law for the opinion of a court, is one of a general and unrestricted nature.
  42. There are no rules circumscribing the way in which this discretion has to be exercised, and any rules seeking to do so would be generally unacceptable.
  43. Even if the requirements referred to by the court in Kildrummy are found to be present, an arbitrator is still not obliged to accede to Party A’s request and to refer the question of law to a court of law for an opinion.
  44. The court’s power to order an arbitrator to refer a question of law for an opinion, is one that will be sparingly exercised.
  45. A party should not, through reliance on section 20, be allowed to renege on its agreement to have a legal issue determined by an arbitrator.
  46. If an arbitrator decides to accede to Party A’s request, it should be done on facts which were either proved in the arbitration hearing, or otherwise admitted by the parties. These facts should be set out in your referral.
  47. Section 20, by its very nature, is open to exploitation and abuse and an arbitrator should only refer a question of law for an opinion in terms of a bona fide application to do so.

Adv Mias Mostert

Member of the Johannesburg Society of Advocates

Fellow of the Association of Arbitrators (Southern Africa) NPC

Sandton

17 April 2023

[1]       1978 (2) SA 124 (T).
[2]       (1973) 2 All ER 1073 at p. 1077 D-G.
[3]       Kildrummy at pp. 127 H-128 A.
[4]       Ibid., at p. 129 A.
[5]       Ibid., at p 130 E.
[6]       2007 (3) SA 266 (SCA).
[7]       Telcordia at para [151].
[8]       Ibid., at para [152].
[9]       Id.
[10]     2010 (6) SA 120 (SCA).
[11]     Road Accident Fund at para [36].
[12]     Id.
[13]     1915 AC 922 at p. 932.
[14]     Kildrummy at p. 131 A.
[15]     1950 (2) SA 449 (A).
[16]     Morrison at p. 455.
[17]     Strutt v Chalmers & Another 1959 (2) SA 536 (N).
[18]    Telcordia at para [155].
[19]     Ibid., at para [154].
[20]    Id.
[21]    Id.
[22]    Road Accident Fund at para [38].
[23]    Ibid., at para [39].
[24]    Id.
[25]    David Butler and Eyvind Finsen, Arbitration in South Africa Law and Practice, 1993, at p. 208, with reference to Midkon (Edms) Bpk v Department van Gemeenskapsontwikkeling 1983 (4) SA 78 (T) at p. 84 A-C, and p. 86A-B.
[26]    Kildrummy at p. 131 A.
[27]    Dorman Long Swan Hunter (Pty) Ltd v Karibib Visserye Ltd 1984 (2) SA 462 (C) at 477D, 480B-E; Peter Ramsden, The Law of Arbitration, 2011, at p. 152.
[28]   Road Accident Fund at para [32].
[29]   Telcordia at para [153].
[30]   Government of the Republic of South Africa v Midkon (Pty) Ltd 1984 (3) SA 552 (T) at p. 559A.
[31]    Butler & Finsen at p. 207.
[32]    Ibid., at p. 208.
[33]    Id.
[34]    Id.
[35]    Ibid., at p. 210.
[36]    Ibid., at p. 210, note 269 and the summary there given.
[37]    Government of the RSA v Midkon at p. 561 A-G.
[38]    Ibid., at 563H.
[39]    Government of the RSA v Midkon at p. 561 A-I.
[40]    Butler & Finsen at p. 210.

Leandré Jacobs

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