The Arbitration Act No. 42 of 1965 (the Act) provides for the settlement of disputes by arbitration tribunals where there is a written arbitration agreement and for the enforcement of awards delivered by the arbitration tribunals.
The Act further provides, among others, for the process of initiating arbitration proceedings, exchanging of pleadings, summoning of witnesses, recording of evidence and the delivery of the arbitration award.
Notwithstanding the processes outlined in the Act, the parties are entitled to augment the processes envisaged by the Act to ensure that specific circumstances of the parties involved in the arbitration are catered for and thus ensuring fairness in the proceedings.
There are instances where notwithstanding an agreement to arbitration, a party to the arbitration agreement may default. Section 15 of the Act provides the non-defaulting party with remedies in case of a breach of the arbitration agreement and Section 15(2) provides:
“If any party to the reference at any time fails, after having received reasonable notice of the time when and place where the arbitration proceedings will be held, to attend such proceedings without having shown previously to the arbitration tribunal good cause and sufficient cause for such failure, the arbitration tribunal may proceed in the absence of such party.” [underlined for emphasis]
Section 15(2) of the Act applies to any aspect of the arbitration once the arbitration proceedings have commenced, including interlocutory proceedings. Interlocutory proceedings are proceedings, within the main proceedings, in which the applicant seeks relief which ensures that the procedures agreed or commonly observed are in fact observed, thus ensuring an easier running of the matter. Awards made in default in relation to them are uncommon, and for that reason, our focus here is on cases where a party fails to deliver a pleading within the time periods agreed.
A party that fails to deliver a pleading within the time period agreed, is in breach of the arbitration agreement and must show good and sufficient cause why the breach must be accepted. This can be done by seeking the consent of the non-defaulting party and, if not granted, by way of a condonation application to be determined by the arbitrator.
In the case of The Greater Tzaneen Municipality (Municipality) v Siphiwe Engineering and Technologies cc (Siphiwe), the court (on appeal) had to consider the question of whether the decision of the court a quo to uphold an award granted by an arbitrator in default fell to be set aside.
In the arbitration proceedings, the parties had agreed time periods for the exchange of pleadings. Siphiwe duly delivered its statement of claim as agreed by the parties. The Municipality failed to deliver its statement of defence on the date agreed and sought an extension from Siphiwe in order to do so. The request was rejected; however, the Municipality was afforded 5 days to file its statement of defence. For reasons unclear from the judgment, the Municipality’s attorneys of record withdrew a day before the expiry of the 5 days from the matter. The new attorneys were appointed on the same day and they too sought an extension which was rejected outright.
Soon thereafter, Siphiwe applied for an award from the arbitrator by way of default which was granted (Default Award). Siphiwe approached the court a quo to have the Default Award made an order of court and the application was opposed by the Municipality. Along with opposition, the Municipality sought to have the Default Award reviewed and set aside in terms of section 33 of the Act. The basis of the review application was that the notice for the default judgment hearing did not state the date when the default application would be heard and thus the arbitrator committed a gross irregularity in granting the Default Award, which invalidated the Default Award. The court a quo upheld Siphiwe’s application and dismissed the Municipality’s section 33 review application.
The court a quo had found that section 15(2) of the Act did not apply to the matter before it, as the section only applied to a party that failed to attend a hearing date and not a party that failed to file a statement of defence. The court a quo thus found that the arbitrator had acted in accordance with Article 30 of the rules of the Association of Arbitrators in granting the Default Award. Accordingly, the court a quo found that the arbitrator did not commit a gross irregularity which rendered the Default Award invalid.
On appeal, the court discussed the applicability of section 15(2) of the Act. It disagreed with this restrictive interpretation and application of section 15(2) of the Act. Instead, the court found that the words “arbitration proceedings” in section 15(2) “…encompassed all proceedings which might arise during the course of the arbitration.” The court further found that Article 30 equally applied to any part of the arbitration proceedings and not just the hearing.
Of particular importance, any decision of the arbitrator during the arbitration proceedings must adhere to the principles of equity and fairness as encapsulated in the principles of audi alteram partem. To this end, the arbitrator must consider the reasons of the breach of the arbitration agreement before delivering an award by way of default. If no reasons have been advanced by the defaulting party, then the arbitrator must give timeous notice to the defaulting party calling upon them to provide reasons within a reasonable time. In the assessment of the reasons, the arbitrator will make a determination as to whether there exists good and sufficient cause which ought to reasonably condone the non-compliance with the arbitration agreement.
There is no finite list of reasons which an arbitrator must accept as being good and sufficient cause. However, in cases where the defaulting party has recently obtained new legal representation or the unavailability of witnesses for consulting purposes may be accepted as sufficient cause. The sufficiency of the reasons will be determined objectively, having regard to the circumstances of each case. If the reasons provided do not show good and sufficient cause, the arbitrator shall make an award in default. It is in this sense that the non-defaulting party’s right to a fair hearing is protected.
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Read the original publication at Fluxmans.