Apr 1,2015 / News / Legal Brief

In the latest in a lengthening line of pro-arbitration judgments in recent years, the Supreme Court of Appeal in De Lange v Presiding Bishop, Methodist Church of Southern Africa and Another[1]refused an application to set aside an arbitration agreement.

INTRODUCTION

The appellant, De Lange, was a minister of the Methodist Church. After she announced her intentionto marry her same-sex partner,the church chargedher with breaking its rules, specifically the rule that ministers were required to obey church policy -in this case, recognising only heterosexual marriages. The church’s district disciplinary committee in due course found her guilty, and De Lange appealed to its connexional disciplinary committee, which confirmed the verdict and sentenced De Lange to the discontinuation of her office of minister. De Lange referred the matter to arbitration in terms of the Laws and Discipline of the Church (L&D), which provided that all disputes between ministers and the church had to be determined by means of arbitration. After the parties failed to conclude an arbitration agreement, the convenor entered into an arbitration agreement on De Lange’s behalf, as the L&D authorised him to do.

Before the arbitration could commence, De Lange applied to the High Court for, among other relief,an order setting aside the arbitration agreement.The High Court dismissed the application, and granted leave to appeal to the SCA. The issue was whether De Lange had shown “good cause” to set aside the arbitration agreement in terms of section 3(2) of the Arbitration Act[2], which empowers the court to set aside an arbitration agreement when an applicant shows good cause for it to do so.

GOOD CAUSE REQUIREMENTS

The case law regarding what constitutes “good cause” for the purposes of s 3(2) provides some guiding principles, even though, by its nature, the “good cause” requirement demands that each case be evaluated on its own merits. First, it has repeatedly been held that the onus to show good cause for avoiding an arbitration agreement is not easily discharged, and that the courts will only exercise its judicial discretion in this regard when a very strong case has been made out.[3]

Second, when an accusation of fraud is involved, the party accused of fraud is generally entitled to have the dispute ventilated in an open court if he wishes it, and will be allowed to avoid an arbitration agreement on this basis.[4] Furthermore, the courts attach far more weight to a s 3(2) application brought by a party accused of fraud than by a party accusing another of fraud.[5] The rationale for this distinction is twofold: a party accused of fraud is entitled to clear his name in public proceedings. And the courts cannot allow accusations of fraud to be opportunistically levelled by parties wishing to avoid arbitration agreements.[6]

There have been historical judgments where the courts have been too ready to grant s 3(2) applications. In Sera v De Wet[7]it was held that where legal questions were in issue, and where credibility would play an important part in resolving factual issues and it would be embarrassing for the arbitrator (an architect) to make findings of credibility on a fellow architect who was an expert witness in the matter, a s 3(2) application ought to be granted. This judgment would probably not be decided the same way today, however. It is common for arbitrators to be called upon to resolve legal issues. And the current (and correct) emphasis on party autonomy dictates that where the parties agreed to appoint an architect as arbitrator in a dispute where it was foreseeable that one or both parties would have to call an architect as an expert, they must have accepted whatever consequences might flow from the arbitrator’s feelings of embarrassment.

In the De Lange case, the appellant relied on five grounds of “good cause” for avoiding the agreement. The first was that there was no valid arbitration agreement. De Lange had however maintained in her founding affidavit that there was one, and had accepted that the convener was entitled to have signed it on her behalf in terms of the L&D. And the existence of an arbitration agreement is a jurisdictional prerequisite for the operation of s 3(2), so that if De Lange’s argument that there was no agreement had been correct, she would have been non-suited.[8]

The second ground was the delay in concluding the arbitration agreement. The SCA found that the delay was largely explicable and partially attributable to De Lange’s attempts to have issues referred that were not encompassed by the church’s findings, and to include a right of appeal to which she was not entitled.

The third ground was that the arbitration agreement was weighted against her because (a) it required her to waive constitutional rights, (b) it ousted the court’s powers and (c) it denied her the right to legal representation. As to (a), the arbitration agreement specifically recorded the parties’ non-waiver of any legal rights. As to (b), the arbitration agreement explicitly acknowledged the court’s powers of review – powers which it could in any event not have ousted. As to (c), the SCA noted that our courts have consistently denied any entitlement to legal representation in fora other than courts of law.

Fourthly, De Lange alleged a reasonable perception of bias by the arbitrator, who was a member of the church and acted at its behest. De Lange’s problem here was that she had repeatedly and in writing affirmed her confidence in the arbitrator (a silk at the Grahamstown Bar), even after he had offered to step down if the she was uncomfortable with him presiding. And the SCA found that there is nothing objectionable about private associations excluding outsiders from their private adjudicative processes and resolving them in-house – indeed, it is usual.

Finally, De Lange contended that arbitration would be futile because the arbitrator had already expressed a view that he could not interfere with the merits of the church’s decision but could only scrutinise the processes that had been applied. The SCA found no factual support for this objection. The arbitrator’s task was to determine whether the church had acted correctly in finding against De Lange, and this would entail an evaluation of the whole matter.

The SCA cited the doctrine of entanglement, which requires courts to refrain from adjudicating doctrinal disputes of a religious character except where strictly necessary. This doctrine has its roots in the separation of church and state, and also pays due regard to party autonomy, because it requires that parties who have voluntarily subscribed to an association be bound by the association’s internal dispute-resolution mechanisms. De Lange’s appeal was accordingly dismissed.

CONCLUSION

Several recent cases in the SCA and the Constitutional Court have sent the message that the era of courts’ unduly interfering in arbitrations is over, and that the integrity of the arbitral process must be respected. In Telcordia Technologies Inc v Telkom SA Ltd[9],LufanoMphaphuli and Associates (Pty) Ltd v Andrews and Another[10]and Enviroserv Waste Management (Pty) Ltd v Wasteman Group (Pty) Ltd[11], the SCA and the Constitutional Court declined to enter into the merits of a matter in the absence of a reviewable irregularity – with a mere mistake by the arbitrator not constituting one. In Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co SARL[12], the SCA upheld the “sanctity” of the arbitral process when foreign parties choose South Africa as their forum for international arbitration. The De Lange case may now be added to this line of decisions affirming the integrity of the process of arbitration.

[1]2015 (1) SA 106 (SCA)

[2]Act 42 of 1965

[3]Metallurgical and Commercial Consultants (Pty) Lyd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W); Universiteit van Stellenbosch  v JA louw (Edms) Bpk 1983 (4) SA 321 (A).

[4]Welihockj and others v Advtech Ltd and others 2003 (6) SA 737 (W)

[5]Rawstorne and another v Hodgen and another 2002 (3) SA 433 (W)

[6]But see in this regard North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd 2013 (5) SA 1 (SCA), in which the court, wrongly in my view, permitted a party to escape an arbitration agreement on the basis of the mere allegation that the agreement had been fraudulently induced, and without testing this allegation through vica voce evidence. For more on this judgment, which constitutes an aberration from the courts’ recent line of judgments emphasising the integrity of arbitration, see Pierre Burger, “One step backwards for arbitration”, https://www.werksmans.com/legal-briefs-view/one-step-backwards-arbitration/

Click on the link if you’ like to more information on Werksmans expertise in the Arbitration sector.

[7]1974 (2) SA 645 (T)

[8]In a concurring judgment, Wallis JA held that there was in fact no arbitration agreement, as the L&D, which authorised the convener to conclude the agreement on De Lange’s behalf, did not create a contractual relationship between the church and its ministers.

[9]2007 (3) SA 266 (SCA)

[10]2009 (4) SA 529 (CC)

[11][2012] 3 All Sa 386 (SCA)

[12]2015 (1) SA 345 (SCA)