“We cannot afford to arbitrate before three arbitrators! The amount in dispute doesn’t justify such costs.” Words uttered all too often in the modern era of dispute resolution.
The reality is that having three arbitrators preside over a dispute is at least three times as expensive. But, is there nothing that can be done to reduce the costs of a three-person tribunal? Of course there is. As a start, one can start applying the Arbitration Act properly.
The current Arbitration Act, a legislative relic of the sixties, governs all arbitrations in South Africa. Once the highly anticipated International Arbitration Act comes into force, the old act will only govern domestic arbitrations. But in South Africa at least, the number of domestic arbitrations far exceeds international arbitrations and this is unlikely to change anytime soon. A proper understanding of the Act is therefore not only useful, but essential.
Cue s11 of the Act, which provides for the appointment of the enigmatic umpire. An umpire, in this context, is not a person sporting a wide-brim hat and sunscreen. She is also not an arbitrator. Her role is not to preside over arbitral proceedings but, essentially, to resolve a deadlock.
Section 11(a) provides for the appointment of an umpire where the parties have elected an even number of arbitrators. The umpire will then have the final say in the event of a split decision. A very practical provision indeed - yet hardly ever used.
Section 11(b) is where the umpire is (or at least should be) given her moment to shine. Often parties agree to submit their dispute to a panel of three arbitrators, each party appointing one arbitrator with the appointees then appointing a third arbitrator. Nothing unusual about such a mechanism. But here’s the kicker: the third arbitrator appointed in this manner is in fact not an arbitrator at all. In accordance with the Act, such an “arbitrator” is in fact an umpire (unless the agreement specifically states otherwise).
So what, one may ask? Well, an umpire occupies a distinct role to that of an arbitrator. She acts as the deadlock breaker when two arbitrators cannot agree on something. If the two arbitrators are in agreement then there is no role for the third umpire to play.
Accordingly, s19(b) of the Act, curtails the fees payable to any such third umpire. She is only entitled to charge for her time, attending hearings or contributing to the decision-making process, if specifically instructed to do so by the parties or where the arbitrators cannot agree on a point and expressly refer the question to the umpire for determination. In all other instances, the umpire is not entitled to charge fees.
Lightbulb moment: A proper understanding of the Act may immediately result in a 33% saving in tribunal fees!
Section 11(c) provides one further golden nugget. Insofar as the arbitrators (the two appointed by the parties) fail to render their award within the allocated time (and the parties do not advise the third umpire of any extension granted), the third umpire shall forthwith enter the fray, replacing the two arbitrators, acting as a sole arbitrator.
Drastic, yes. Effective? Absolutely.
Before you balk at the idea of the three-member arbitral tribunal, check that you have been advised properly. A three-member panel may be more appropriate than you think…