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What you need to know about Arbitration 

Arbitration is a form of Alternative Dispute Resolution to litigation. Arbitration is regulated in terms of the Arbitration Act 42 of 1965.

The parties must agree to refer a matter to arbitration. Arbitration can be governed by the Uniform Rules of Court or the rules of the Arbitration Foundation of South Africa (AFSA), depending on the agreement between the parties.

The arbitrator should be appointed by the parties on the basis of the nature of the dispute. For instance, if the matter revolves around financial issues, the mediator may be an expert accountant with ten years’ experience in the profession. The parties can agree on the particulars of the mediator. Otherwise, the parties can agree that AFSA appoint an arbitrator on their behalf.

Owing to the various fees associated with arbitration, including appointing an attorney and renting a venue, arbitration can be quite expensive. It can also run for a long period of time depending on the complexity of the dispute.

Despite this, arbitration can still be faster and cheaper than litigation. An important benefit is that the arbitration decision is private and cannot be shared to impact the reputation of your business. It is also binding and can be made an order of court which makes the decision easier to enforce against the other party.
Your business may benefit from arbitration, particularly where loss of the dispute would cause reputational harm to your business, or where litigation has already taken a long time and been extremely costly. Arbitration can assist you to achieve a binding decision for your business and resolve a dispute expeditiously and privately.

What you need to know about Mediation 

If your business enters into agreement, it will likely become involved in a dispute. Mediation is a useful alternative to litigation. Not only is it cheaper than litigation, but it can be more efficient and less time-consuming, particularly where the mediation is successful.

You cannot force the other party to refer the dispute to mediation. Parties must agree to resolve their dispute through mediation.

If a matter is referred to mediation by the parties, they will meet with an impartial third-party mediator to facilitate agreement between them. The costs of the mediation will be shared by the parties.
Mediation is confidential and “without prejudice” because it involves settlement negotiations. The record of the mediation is not public and cannot be brought before the Court if the dispute is subject to litigation after unsuccessful mediation.

Generally, the process for mediation is as follows:
- The parties agree to mediation and make arrangements for a mediator. The mediation can be subject to the Rules of the Arbitration Foundation of South Africa, in accordance with the parties’ agreement;
- The mediator conducts the mediation at the premises and on the date and time agreed by the parties;
- At the mediation, each party will have an opportunity to express their views. This ensures fairness of the mediation;
- The aim of the mediation is for the parties to cooperate to reach a settlement of the dispute;
- The mediator cannot impose a decision on the parties but rather facilitates resolution of the dispute by the parties;
- The mediation will terminate if a party withdraws from the mediation, a settlement cannot be reached, or a written settlement is concluded between the parties.

If the other party to your dispute is willing to resolve the matter through mediation and you reach a settlement, this will save your business from the costs of litigation and may assist in preserving an amicable relationship with the other party, allowing you to engage with each other after the dispute.

The benefits of alternative dispute resolution (ADR) vs. litigation for small businesses 

When disputes arise in business, business owners often face the challenge of choosing how to resolve them. The two main options are Alternative Dispute Resolution (ADR) and litigation. Each method has its pros and cons, but ADR offers several advantages for small businesses.

ADR is made up of other dispute resolution methods outside of going the court route and the decisions may either be binding or non-binding. This is a method of dealing with commercial disputes that has become popular in South Africa. 

The different methods of Alternative dispute resolution consist of: 
  • Negotiation – discussions between the parties to reach a mutual agreement. 
  • Mediation – a neutral third party, called a mediator, facilitates discussions between the parties to help them reach an agreement or to settle the dispute. A mediator does not propose solutions.
  • Conciliation – discussions are facilitated by a conciliator, who helps the parties reach an agreement by also proposing solutions.
  • Arbitration – a little more formal than the other processes, where parties agree to hand their dispute over to an arbitrator who will make a decision that is binding on the parties.

Here are a few factors to consider before deciding whether going to court is the best option for resolving your commercial dispute, which could be beneficial to your business: 
  • Cost effectiveness – these alternative processes incur lower costs than litigation which goes on for longer.
  • Duration of proceedings – the processes produce outcomes faster unlike court proceedings that have multiple and longstanding postponements.
  • Confidentiality – the processes remain confidential, records and sensitive information are not for public viewing, unlike court proceedings.
  • Flexibility of process – the parties can control the process and tailor it to suit their specific needs, unlike in court proceedings. 
  • Less disruptions – these processes are less disruptive to the business and its ongoing operations. 
  • Preservation of relationships – because open communication and collaboration is encouraged, this can help the parties to preserve the business relationship after resolving disputes.

A challenge to the effectiveness of ADR is the parties being willing to engage with one another and commit to the process, as well as power imbalances, company culture differences and the complexity of some disputes. 

Not only does ADR help to ease the burden on the backlogged court system, it also plays a role in the encouragement of trust, cooperation and sustainable growth in the business environment because it makes room for compromise and allows for a “win-win” solution that takes all parties’ positions into consideration as opposed to one side wining. 

Although beneficial for a business, ADR does have some limitations or disadvantages to it, namely: 
  • No appeal: there is no right of appeal after a decision is made, unless an appeal process is explicitly included in your agreement.
  • Non-binding: agreements reached during the processes are not binding on the parties, except for decisions made by arbitrators. 
  • Alternative costs: although ADR may be less costly than litigation, the parties pay for the time of the third parties, the meeting/hearing room, the panels/associations managing the process, your legal representatives, travel costs, etc. 
  • Stalling tactic: because most of the processes are not binding, some parties may use ADR to stall the dispute, which also leads to further unnecessary expenses.
  • Power imbalances: The process may be influenced by the party with greater financial resources.
  • Precedent: unlike the court process where precedents are used to guide and determine outcomes, in ADR this is not the case. Suggestions can be made based on the merits of the dispute and decisions can be made based on the evidence presented and relied on, and how considerations of fairness will dictate the matter.  

Deciding whether ADR is the best route for resolving a business dispute requires careful consideration of the circumstances. Having a well-drafted dispute resolution clause in a business contract can simplify the decision-making process and offer guidance toward the most effective resolution method.

How to engage a mediator to resolve contractual disputes without going to court

When a business faces a contractual dispute, going to court can be costly, time-consuming, and stressful. An alternative method of resolving the issue is through mediation, which allows parties to come together and reach a solution with the help of an impartial third party — the mediator.
A mediator is a neutral third party, who facilitates discussions between the disputing parties to help them reach a mutual agreement to settle the dispute. A mediator does not propose solutions or make decisions and the outcome is non-binding unless it is reduced to writing and signed by the parties.
The mediator does not have to be a lawyer. It could be an expert from another profession, depending on the context of the dispute. For example, an engineer in a construction dispute. The choice of mediator is however made soon after the parties agree to using this resolution process, with guidance from lawyers, dispute resolution agencies, online research, or previous experience with the mediator.
Factors that must be considered when selecting a mediator for your dispute: 
  • Training: verify the credibility of the mediator’s training qualification, if any, and if it is recognised in the jurisdiction that the dispute arose. Some mediators do not have formal qualifications but do have the necessary reputation and experience for them to be entrusted.
  • Experience: a mediator’s history of mediation is useful to assess the extent and type of experience. 
  • Specialisation: a mediator that has specialised knowledge in a particular area of law or fact allows them to receive the information, understand it and respond to it faster than one that needs to be educated on the matter. But if the parties want a more facilitative and unbiased mediator, it may be best to select one who is not a specialist.
  • Reputation: this provides a sense of ethical conduct and trustworthiness.
  • Associations or Panels: credible associations and panels that are managed by dispute resolution agencies/organisations make referrals to mediators. Parties can work with them to consider the necessary factors in the selection process. 
  • Arbitrary factors: Parties may consider the ethnicity, race, religion, age, sexual orientation.
  • Practical factors: location, price or availability. But a mediator should not be appointed simply due to these factors alone. 

Should the mediation process fail, the parties may request the mediator to make a recommendation for an appropriate resolution of the dispute. Litigation still also remains an option.

By engaging a mediator, a business owner can avoid the expensive and lengthy court process while working towards a fair resolution for a business dispute.

The process and benefits of using arbitration for resolving supplier disputes

When a dispute arises between your business and a supplier, it can cause significant disruptions. Instead of going through lengthy and expensive court procedures, arbitration can be an effective way to resolve the issue.
Arbitration is a form of Alternative Dispute Resolution (ADR) and has advantages such as being cost effective (except where an expert is appointed); shorter duration of proceedings; confidentiality of parties, records and evidence; flexibility of process which the parties can control; less disruptions to ongoing business and the preservation of business relations and working environments. 

Arbitration vs Litigation and Mediation
Arbitration is a little more formal than other ADR processes, where parties agree to hand their dispute over to an arbitrator for settlement, who will make a decision that is binding on the parties, in the form of an arbitration award. The arbitration award can be enforced by being made an order of court through the litigation/court process. The arbitration decision generally cannot be appealed, unless provision for appeals has been made in the initial agreement between the parties. 

Litigation is a court process used to resolve disputes between parties, by appearing in a court of law before a judicial officer who makes a decision/judgment based on pre-defined processes. Usually, one party wins the award which is automatically an order of court and may be appealed if the court allows. 
Mediation includes a neutral third party, who facilitates discussions between the disputing parties to help them reach a mutual agreement to settle the dispute. A mediator does not propose solutions or make decisions, and the outcome is non-binding unless it is reduced to writing and signed by the parties.

Benefits of arbitration
  • Duration – the process is faster than litigation, which can save costs (in certain cases) and time, because the process is less formal than court proceedings. 
  • Flexibility – the process can be tailored to the parties’ specific needs and allows for them to be in control of the process.
  • Confidentiality – the parties, records, evidence and proceedings can be kept private and out of the public domain, thereby protecting the company’s reputation.
  • Specialised expertise – arbitrators are generally experts in the field of dispute, which is important for resolving the dispute, especially in complex issues and ultimately in coming to a fair decision.
  • Binding decisions – arbitration awards are binding and enforceable in the court of law. Once an award is made, the parties are obliged to comply with it. 

Considerations when selecting an Arbitrator to preside over your dispute:
  • The parties by way of the arbitration agreement must make provision for the appointment of an Arbitrator. If this is not provided for, an arbitrator will be appointed on behalf of the parties by way of arbitration forum that the parties select to arbitrate the dispute.  
  • Legal expertise, relevant experience and industry knowledge related to the dispute is important as the arbitrator will be making a decision to resolve the dispute which will be binding on the parties.
  • Availability of the arbitrator and their experience in time management in that specified field depending on how fast the parties wish for the dispute to be resolved and finalised and reducing delays.
  • The affordability of the arbitrator if an expert in the field is appointed – experts are generally more expensive as they have to be appropriately paid. 

Contract terms that can give rise to supplier disputes include unclear termination rights, payment terms, and obligations related to the specific products or services delivered, such as the following: 
  • Failure to perform what has been agreed to by the service provider; 
  • Non-payment of services rendered to the consumer;
  • Unreasonable delays in delivering the goods or service; 
  • Unreasonable termination of the agreement by not following the contract provisions for termination; 
  • A contract that is vague and has been poorly drafted. 

Supplier disputes can disrupt operations and strain business relationships. For business owners, addressing these disputes promptly and effectively is crucial to maintaining supply chain stability and avoiding financial losses. Dispute resolution options like arbitration or mediation can provide faster and less costly alternatives to litigation, helping parties reach an agreement while preserving professional relationships.

Key elements to include in dispute resolution clauses to ensure fairness and clarity

As a business owner, it’s important to include a well-crafted dispute resolution clause in your contracts to ensure that disagreements are handled efficiently and fairly.
Dispute resolution clauses in a contract talk about the preferred way in which disputes between the parties to the contract should be resolved. This makes reference to Alternative Dispute Resolution mechanisms such negotiation, mediation, conciliation and arbitration, as alternatives to or in addition to the litigation process.

Dispute resolution clauses are standard contract clauses which ensure that the contract and the dispute measures are both fair and clear toward all parties involved. Fairness can generally be defined as “the quality of treating people equally or in a way that is reasonable.” Clarity can generally be defined as “the quality of being expressed clearly.” Simply put, the clauses must ensure that all parties are treated equally and that the clauses provide clarity for all parties to know what it entails. Fairness however will be dependent on the circumstances and type of business and contract at hand. 

The following elements and key factors are to be considered when drafting dispute resolution clauses in a contract: 
  • Types of disputes covered and when they will trigger the clauses 
The parties must be clear on what kind of disputes the clause will apply to and when the clause will be activated. 

  • Notice periods and timelines for addressing the issue
When a dispute arises and the dispute resolution clauses are activated, the one party must inform the other by way of a notice, within a specified timeframe. Timeframes for the resolution of the matter and processes can also be specified because a dispute that keeps dragging on can be considered to be unfair. 

  • An alternative dispute resolution mechanism/method
This includes the process or rules to be followed, as well as timeframes for each stage, and what resolution methods are to be used:
   - Non-binding methods: negotiation, mediation and conciliation. 
   - Binding methods: arbitration – here the right to appeal an award and the enforcement thereof must be considered.

  • Selection of presiding officers
The procedure for the appointment of presiding officers by the parties or by a specific forum must be specified.

  • Location of hearing 
Where the meetings and hearings will be held. 

  • Timing and location for legal proceedings
This clause aims to delay or limit the parties’ ability to issue legal proceedings until a specified period of time. The parties must try resolve the dispute by way of ADR methods first before resorting to litigation.

  • Rights and obligations of the parties
What each party is entitled to and what is required of them during the dispute period.

  • Failed dispute resolution process
What process is to be followed by the parties if the dispute resolution process is unsuccessful and what alternative routes and options are available to further pursue the resolution of the dispute.

  • Governing law and jurisdiction
What country’s law will apply to disputes and which courts will have jurisdiction to preside over the matters. 

  • Confidentiality
Include a confidentiality clause to protect sensitive information during the resolution process. This is especially important in cases where the dispute may involve proprietary business information.

•Costs
Clarify how the costs of dispute resolution will be shared. In some cases, each party may bear its own costs, while in others, the losing party may be required to cover the costs. Defining this in advance can prevent disputes over expenses later.

Including these clauses into your business contracts will assist in ensuring that all parties are fairly treated and that the terms are sufficiently clear for all parties to understand and apply.  A smoother, more predictable process will help maintain good business relationships and minimise the risk of expensive and prolonged legal battles.

How the CPA influences the dispute resolution process in consumer contracts

The Consumer Protection Act (CPA) is aimed at promoting and advancing the social and economic welfare of consumers in the country. It intends to regulate the marketing of goods and services to consumers and the relationships, transactions and agreements between consumers and suppliers. The objectives of the Act, amongst others, is to protect consumers and prevent them from being harmed or exploited by unfair, deceptive and fraudulent business practices and to provide systems of dispute resolution and enforcement.

The Act applies to all transactions of goods and services within the ordinary course of business. A consumer who is a natural person or a juristic person with an annual turnover of less than R2 million can enforce their rights. The Act aims to not only protect individuals, but small businesses alike. It is therefore worth noting that your business can be considered a supplier, but depending on size can also be considered a consumer. 

Consumer Rights in relation to dispute resolution
Under the CPA, consumers are encouraged to first attempt resolving disputes directly with the business. However, if this doesn’t lead to a satisfactory outcome, the CPA requires consumers to consider Alternative Dispute Resolution (ADR) processes.

The CPA under Section 70 provides for a ’consumer’s right to be heard and to obtain redress in the form of ADR and states that – 
1)  A consumer can resolve a dispute with a supplier by referring it to an Alternative Dispute Resolution (ADR) agent, who could be —
      a) an ombud with jurisdiction over the supplier;
      b) an accredited industry ombud under the Act; 
      c) a person or entity providing conciliation, mediation or arbitration services; or 
      d) The consumer court in the relevant province, if one exists, as per its governing laws.
2)  If the ADR agent decides the dispute is unlikely to be resolved through their process, they can end it by notifying the parties. After this, the consumer can file a complaint with the Commission under section 71.

A form of ADR is the Consumer Goods and Services Ombud (CGSO). The CGSO is an industry ombud that is accredited under the CPA to mediate and resolve disputes between consumers and suppliers. If a consumer’s complaint lodged with a supplier has not been resolved to the consumer’s satisfaction, it can be escalated to the CGSO. The CGSO is mandated to mediate disputes between the consumer and supplier and to ensure that industry players comply with the Consumer Goods and Services Industry Code of Conduct. The supplier will be given an opportunity to resolve the complaint, and if that fails, the CGSO will assist the parties in reaching an agreed settlement. Since the CGSO acts as a mediation platform, it does not make decisions or award compensation.

If a consumer’s complaint is unresolved through direct negotiation or the CGSO, they can escalate the matter to the National Consumer Commission (NCC) for further investigation or legal action. The NCCs role is to “protect the interests of consumers and ensure accessible, transparent and efficient redress for consumers.”

In attempting to resolve complaints that contravene the CPA, the NCC does the following: 
  • Promotes the resolution of disputes between consumers and suppliers,
  • Conducts investigations against those suppliers allegedly engaging in prohibited conduct,
  • Refer matters for prosecution to the National Consumer Tribunal, and
Promotes compliance with the CPA through advocacy, education, and awareness.

The NCC has the power to impose a fine of up to a maximum of 10% of the supplier’s annual turnover for breaches.

Suppliers must be aware however, that a consumer has 3 years within which a complaint can be lodged from the date of the complaint arising, thereafter the consumer’s right to complain prescribes. One must not be caught by surprise when a complaint is lodged long after a client’s dissatisfaction occurred.

For business owners, the CPA means that you are legally required to follow these steps for dispute resolution. Failing to offer consumers a chance to resolve disputes fairly could lead to penalties or legal action. It’s crucial to have a clear and transparent process for handling complaints and disputes, and to be familiar with ADR methods as a cost-effective solution.
The CPA encourages businesses to handle disputes with consumers in a fair and transparent way, using ADR methods where possible. By understanding and implementing these requirements, business owners can protect their reputation, avoid legal challenges, and ensure that consumers are treated fairly when issues arise.

Can small businesses use the Small Claims Court to resolve disputes up to R20,000?

The Small Claims Court (SCC) is a less formal court process which allows parties to institute minor civil claims in a faster, affordable and simple way. It resolves certain civil disputes for an amount not exceeding R20,000. Parties do not need and are not allowed legal representation, though advice may be obtained prior to the hearing. It is on this basis that not all matters can be heard in this court. 

Any natural person can institute a claim in the SCC. No juristic person such as a company, close corporation and associations can institute a claim in the SCC, meaning SMEs of this nature cannot make use of this platform. However, a small business such as a sole proprietor in their natural capacity can make use of the SCC as long as the criteria is met. 

A sole proprietor is an individual who owns and operates a business on their own. Legally, there is no distinction between the sole proprietor and the name of the business they run. This means the business does not have a separate legal identity from the owner. As such, a sole proprietor can sue or be sued in their own name or in the name of their business. It is important to clarify this when filing a claim, ensuring that the business is correctly identified as a sole proprietorship and not a different legal entity.

Types of claims that can be heard:
  • Repayment of monies lent 
  • Claiming goods that are due to you (movable or immovable)
  • Claiming monies owed
  • Enforcing a claim based on a legal document like a cheque or acknowledgment of debt (this is especially applicable to sole proprietors)
  • Claiming damages 
  • Claims based on credit agreements 
  • Claiming arrear payments against an occupier of property

If judgment is given in the complainant’s favour, the defendant must pay the money immediately and will be issued a receipt. If they are unable to pay, the court will investigate their financial position and determine a payment plan. If the defendant does not comply with the settlement order, the matter will be referred to the Magistrate’s Court. 

Matters that cannot be heard in the SCC: 
  • Opposition to a judgment or order of court
  • Claims for more than R20,000
  • Claims against the State, local municipality or local government
  • Dissolution of a marriage
  • Validity of a will
These types of matters must be dealt with in other courts, and it is advisable to consult a legal professional to ensure the correct court is used for your case.

The Small Claims Court is a valuable tool for small businesses seeking a fast and inexpensive resolution to minor disputes. However, it is essential to determine the legal personality, and the nature of the dispute, before deciding if this is the right route.