He said, she said… hoping to hear about ‘hearsay’ evidence
Dear Uncle Oswald
I am a retired magistrate, now enjoying my golden years accepting the odd appointment as arbitrator. At present, I am dealing with a construction dispute where the party representatives from both sides are constantly objecting to hearsay evidence. As a result of my 40-odd years on the bench, I am particularly sensitive to the admissibility and weight of evidence. I am inherently inclined not to admit hearsay evidence, but I am somewhat perplexed by the prima facie wide powers conveyed on me as arbitrator by article 27 of the 2018 Standard Procedure Rules for the Conduct of Arbitrations, as published by the Association of Arbitrators (Southern Africa) NPC. I would be grateful to receive your guidance in this regard.
Undaunted
Daantjie Duiwel
Dear Daantjie
The Arbitration Act, No 42 of 1965 is of no particular assistance on the extent to which an arbitrator is obliged to apply the ordinary rules of evidence. The Association’s 2018 edition of the Standard Procedure Rules for the Conduct of Arbitrations (the Rules) are more specific. Article 27 inter alia determines that the arbitral tribunal shall establish the facts of the case by all appropriate means and determine the admissibility, relevance, materiality and weight of the evidence offered. The Rules, however, do not provide guidance on what the appropriate means are or which evidence the arbitrator shall determine.
The traditional view was that the appropriate means and the evidence to be determined are decided by the ordinary rules of evidence. In other words, the traditional view was that an arbitrator is required, as a matter of law, to apply the ordinary rules of evidence in the same way as a court of law.
As long ago as 1993, my dear learned friend Prof David Butler expressed the then controversial opinion that unless the arbitration agreement provides otherwise, whether expressly or by implication, an arbitrator is not, as a matter of law, obliged to comply with the formal rules of evidence, as long as the procedure which he follows complies with the rules of natural justice by being fair to both parties.
More than 20 years later, the same view was authoritatively sanctioned by the Supreme Court of Appeal in Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd & Others [2014] 1 All SA 375 (SCA), where the current position in South African law was stated as follows:
[17] … Fundamental to this objection (that the arbitrator received inadmissible evidence) was the contention that an arbitrator is obliged to apply the rules of evidence in the same way as a court of law … This (reliance on the traditional view referred to above) overlooked the submission … that the rule (as represented by the traditional view) would more accurately reflect modern arbitral practice if it was restated as saying that, unless the arbitration agreement otherwise provides, the arbitrator is not obliged to follow strict rules of evidence, provided the procedure adopted is fair to both parties and conforms to the requirements of natural justice. [18] … In my view, the submission by the author (Professor David Butler) … is sound.
The practical application of the restated view was expressed as follows in Dexgroup: [20] … Arbitrators should be free to adopt such procedures as they regard as appropriate for the resolution of the dispute before them, unless the arbitral agreement precludes them from doing so. They may therefore receive evidence in such form and subject to such restrictions as they may think appropriate to ensure … the just, expeditious, economical and final determination of the dispute. That accords entirely with what Gardiner J said, nearly a century ago, in Clark v African Guarantee and Indemnity Co Ltd (1915 CPD 68 77) that, whilst arbitrators must carry out their duties in a judicial manner, that does not mean that they must observe the precision and forms of courts of law.
In motivating the restatement of the traditional view, the underlying policy considerations and the object of arbitration as opposed to litigation were summarised as follows in Dexgroup: [20] The advantages of arbitration over litigation, particularly in regard to the expeditious and inexpensive resolution of disputes, are reflected in its growing popularity worldwide. Those advantages are diminished or destroyed entirely if arbitrators are confined in a straitjacket of legal formalism that the parties to the arbitration have sought to escape.
Despite what was said in Dexgroup, my considered opinion is that the basic principles of the ordinary rules of evidence remain relevant to an arbitrator for a number of reasons, including the following:
- An arbitrator who is aware of the exclusionary rules rendering certain evidence inadmissible will be more likely to treat such evidence, if admitted, with caution when assessing the weight to be attributed thereto.
- An arbitrator with knowledge of the basic rules of evidence will be less likely to act in a fundamentally unfair manner, or to offend the rules of natural justice.
The rules regarding the standard (whether on a balance of probability or beyond reasonable doubt) and the onus (which party is obliged to prove what) of proof may assist an arbitrator in evaluating conflicting evidence. In addition, it is necessary for an arbitrator to have the ability to distinguish between the rules of evidence (for example, the hearsay rule) and rules of substantive law (for example, the parol evidence rule).
Although he is, in terms of Dexgroup, not obliged to apply the rules of evidence, he is obliged to apply the rules of substantive law. A failure to distinguish between the rules of evidence and the rules of substantive law may lead to a denial of the substantive rights of a party, and even to a gross irregularity and an invalid award. Hearsay evidence is defined in the Law of Evidence Amendment Act, No 45 of 1988 (the Amendment Act) as evidence, whether orally or in writing, the probative value of which depends upon the credibility of any person other than the person giving the evidence.
The generally accepted modern justification for the exclusion of hearsay evidence is that it is inherently unreliable because it cannot be tested by cross-examination. Such evidence may be highly relevant, but inadmissible, because its probative value is totally or partially governed by the credibility of a non-witness. As a matter of policy, hearsay evidence is, in principle, regarded as inadmissible, unless it falls within the exceptions provided for in sections 3(1)(a), (b) and (c) of the Amendment Act. The exceptions are, in essence, if the parties agree to the admission thereof, if the person on whose credibility the probative value thereof depends subsequently testifies, or if the presiding officer is of the opinion that such evidence should be admitted in the interests of justice, having regard to the considerations in sections 3(c)(i) to (vii), including any other factor which should … be taken into account.
Strictly speaking, in terms of Dexgroup and with regard to the term civil proceedings used in section 1 of the Amendment Act, section 3 thereof is not binding on an arbitrator. At best, it constitutes a guideline to an arbitrator whether or not to receive hearsay evidence. However, because the probative value of hearsay evidence relies on the credibility of a non-witness that cannot be tested under cross-examination, there is a material risk of prejudice to the party against whom such hearsay evidence is tendered. It tends to affect the procedural rights of such party. Therefore, your instinct is in my view correct. An arbitrator would be well advised to give proper consideration to the general prohibition against hearsay evidence, and to the exceptions contained in section 3 of the Amendment Act.
The exceptions in sections 3(1)(a) to (c) may provide an arbitrator with a basis to admit the evidence, but the evidentiary weight attached thereto ought to be carefully considered against the overriding consideration that it remains untested evidence with a potentially prejudicial effect. The arbitrator further ought to remain alert to the fact that, under the ordinary rules of evidence, the three exceptions do not render evidence admissible if excluded by another rule of evidence (such as the rule against previous consistent statements). Statutory exceptions to the hearsay rule, such as the admission of certain facts on affidavit, in terms of section 22 of the Civil Proceedings Evidence Act, No 25 of 1965, remain unaffected by the Amendment Act, but are regulated by section 14(1) of the Arbitration Act.
The overriding consideration to determine the evidentiary weight of untested hearsay evidence, if admitted, should remain whether it is corroborated by other evidence. In conclusion, if you decide to admit hearsay evidence after careful consideration of all relevant factors, including the guidelines in section 3 of the Amendment Act, you would be well advised to remain mindful that hearsay evidence is, by its very nature, inherently unreliable and therefore of lesser probative value.
Uncle Oswald
Money, money, money… and how’s a Fellow to be paid?
Dear Uncle Oswald
I have just completed my first arbitration as a Fellow appointed by the Association of Arbitrators (Southern Africa) NPC. I am ready to deliver my award. In my excitement to plunge in headfirst, I failed to discuss money matters with the parties upfront. On my reading of section 25(1) of the Arbitration Act, No 42 of 1965, I am now obliged to deliver my award. What if they don’t pay me?
In nail-biting anticipation
Gladys Gold-Digger
Dear Gladys
You are not the first, and certainly not the last arbitrator to face this predicament. Before the commencement of the Arbitration Act, No 42 of 1965, it was common practice for arbitrators to withhold their awards pending payment of their fees. Section 25(1) of the Act, however, determines that the award shall be delivered by the arbitration tribunal, the parties or their representatives being present or having been summoned to appear.
Section 25(1), unlike many other provisions of the Act, does not contain the phrase unless the arbitration agreement otherwise provides. As such, read in isolation, it appears prima facie to be in contravention of section 25(1) of the Act for an arbitrator to withhold an award pending payment of her fees. However, section 35(4) of the Act determines that the arbitrator or arbitrators or an umpire may withhold his or their award pending payment of his or their fees and of any expenses incurred by him or them in connection with the arbitration with the consent of the parties, or pending the giving of security for the payment thereof.
My solution is for you to summon the parties to appear in terms of section 25(1), to draw their attention to your lien under section 35(4), and to advise them of your intention to enforce it. It will, of course, do no harm in future to come to this arrangement upfront in a written agreement between you and the parties, at the first preliminary arbitration meeting.
Uncle Oswald
Please send your questions to our general manager, Ms Rochelle Appleton, at rochelle@arbitrators.co.za. She will gladly take Uncle Oswald some coffee and cream puffs, and ask him to share his pearls of wisdom with you.