South Africa: Private Arbitration Removes Choice In The Court’s Review Test

Last Updated: 16 March 2012

Article by Imraan Mahomed and Carolyn McKechnie

Alternate dispute resolution has long been established in employment law. The Ministerial Legal Task Team which highlighted the main innovations in the present Labour Relations Act, 1995 also placed great emphasis on alternate dispute resolution. While the vast majority of employment disputes continue to be resolved by way of compulsory statutory arbitration, this form of arbitration often gives way to consensual private arbitration.

Given the seminal decision of the Constitutional Court in Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews & Another 2009 (6) BCLR 527 (CC) and the earlier Supreme Court of Appeal decision in Telcordia Technologies Inc v Telkom SA Ltd 2007 (2) ALL SA 243 (SCA), which held that private arbitration awards are reviewable only on the grounds stipulated in s33 of the Arbitration Act (1965), it is to be wondered why the issue of the appropriate test of review of private arbitration awards is even being considered in the realm of employment law. The recent Labour Appeal Court decision of Volkswagen SA (Pty) Ltd v Koorts NO & Others (2011) 6 BLLR 561 (LAC) illustrates the importance of the question.

It is trite that a private arbitration award is capable of being reviewed in terms of s33 of the Act. s145 of the LRA, however, has "wider" grounds of review than those provided in s33. The LRA review test is subsumed by the constitutional test of reasonableness while the same is not the case in relation to s33. The appropriate test accordingly has serious practical implications.

Where a party draws an arbitration agreement it is, by operation of law, subject to review only on the limited grounds established in s33. As a general rule, an aggrieved party may not seek a review of the award on the grounds listed in s145 of the LRA. In addition, the Labour Court would also not have the power to determine a review on the wider grounds even in an instance where the parties provide for this in their arbitration agreement. This is trite. Harms JA for instance had in Telcordia said:

"by agreeing to arbitration the parties limit interference by courts to the ground of procedural irregularities set out in s 33(1) of the Act. By necessary implication they waive the right to rely on any further ground of review, 'common law' or otherwise. If they wish to extend the grounds, they may do so by agreement but then they have to agree on an appeal panel because they cannot by agreement impose jurisdiction on the court." [our emphasis.]

This view was reconfirmed by the SCA in Lufuno Mphaphuli and Associates (Pty) Ltd. On appeal in that case, the Constitutional Court held that the right of access to court in s34 of the Constitution did not apply where the parties had concluded a private arbitration agreement. The Labour Appeal Court adopted the same view in National Union of Mineworkers on behalf of Employees v Grogan NO & Another (2010) 3 ILJ 1618 (LAC).

In Volkswagen SA (Pty) Ltd the parties agreed that "although the proceedings are private in nature, they will be entitled to rely on the grounds of review encapsulated in section 145 of the LRA." Volkswagen was aggrieved with the award and approached the Labour Court on review on "grounds of review encapsulated in section 145 of the LRA". The review was unsuccessful and determined by the court a quo on the s33 grounds of review. Volkswagen argued that the parties intended to afford themselves the right to invoke s145 of the LRA and sought to prescribe the review standard to be adopted by the Labour Court. This argument was obviously rejected.

It was also argued by Volkswagen that the review clause was a material term of the arbitration agreement, as it would not have entered into the arbitration agreement on such terms, had it been aware that the award could only be reviewed in terms of s33. As a result, the parties' mistake was sufficiently fundamental that the contract be declared void ab initio. The LAC considered Wilson Bayly Holmes (Pty) Ltd v Maeyane & Others 1995 (4) SA 340 (T) and Van Vuuren Steel (Pty) Ltd v Smith N.O. & Another 2002 (4) SA 264 (SCA), which held that a common mistake will not affect the validity of the contract, unless the parties have agreed that the validity of the contact was conditional upon the existence of such term.

The LAC accepted that there was a common error. However, it was held that the parties had specifically chosen the private arbitration route, in order to avoid having to go to the CCMA. As a result, the contract was not void ab initio and the portion of the arbitration agreement, which imposed a s145 review obligation on the court, was severed from the remainder of the arbitration agreement.

The LAC also found that there was no justus error. The court using the officious bystander test found that the test would yield the following results:

"Clearly, the parties labored under a common error. But would the appellant (Volkswagen) not have concluded the submission to arbitration had it known of the true legal position? What would the parties have said to the officious bystander, if told that they could not instruct the Labour Court to review their matter on broader grounds than those in section 33 of the Arbitration Act? They probably would have said:

"We have a limited choice. Either we go to the CCMA and have no say as to which commissioner will be allocated to arbitrate our matter but we can review the award on wide grounds; or we can continue with arbitration, choose our arbitrator but accept the narrow grounds of review."

The probabilities are that the parties would rather wish to choose their arbitrator and the benefits of private arbitration. The parties would also probably say:

"Although we cannot prescribe to the Labour Court how it should review an award, we can validly charge the arbitrator with the injunction to hear the matter as would a CCMA commissioner. If the arbitrator fails to do so his award can be reviewed on the basis of misconduct."

They may also have said:

"We could arrange for an appeal to a panel and charge that panel with powers similar to those relating to the wide grounds of review. But if we do so the decision of that panel could be reviewed on the narrow grounds."

Volkswagen accordingly was unable to persuade the LAC that arising from the common error of the parties, the agreement was void. The LAC then went on to determine the appeal by applying the s33 grounds of review.

The ultimate lesson to be derived from Volkswagen is that when drawing an arbitration agreement, including an arbitration clause in an employment contract, the parties must ensure that their rights of appeal/review are properly safeguarded. A failure to do so will not easily be remedied by an unscrambling of the omelette in subsequent court proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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