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Scholarly Papers
Oct 20, 2022

The Finality Principle in Arbitration: A Theoretical Exploration

Publication: Journal of Legal Affairs and Dispute Resolution in Engineering and Construction
Volume 15, Issue 1

Abstract

Arbitration remains a popular means of resolving construction industry disputes. Among its purported advantages is an emphasis on the notion of finality; in other words, that awards made following arbitration proceedings are final and should bring the dispute to a conclusive and binding settlement. However, in most jurisdictions, such as in South Africa, the finality principle can be impeached by the courts, who are able to vacate awards on the basis of statutory (legislative) or common law provisions (or both). While the finality principle and vacatur are both generally well espoused in arbitration literature, our appreciation of broader theoretical discourse in arbitration is arguably, more limited. With this in mind, framed within the law and society school of thought, we set out in this paper to elucidate upon existing theories that are regularly relied upon to explain how finality may be generated, dispersed, endorsed, and modified through vacatur. In doing so, we clarify and demonstrate (set within the context of South African domestic commercial arbitration) how the finality principle in general and vacatur in particular are regulated by the state through legislation. An analysis of some specific construction arbitration case examples is also undertaken.

Introduction

What is Arbitration?

Arbitration is a process that focuses on the settlement of disputes (Carlston 1952). It is construed as a quasi-legal (Carlston 1952; Weidemaier 2010, 2011) and judicialized (Stipanowich 1987, 2010) process that involves parties to a dispute submitting their claims to hearing and settlement in a process overseen by one or more individuals of their choice who then decide on matters of controversy between the parties (Sturges 1960). Central to the arbitration process is the arbitrator, who is defined as “a private extraordinary judge . . . from which there lies no Appeal” (Jacob 1729, i Roll. Abr. 251). In South Africa, arbitration has been defined as “the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of law by one or more persons (the arbitral tribunal) instead of by a court of law” (Shoprite Checkers v. Commission for Conciliation, Mediation and Arbitration and Others) [at 89]. Under South African jurisprudence, “The hallmark of arbitration . . . is that it is an adjudication” (Bidoli v. Bidoli) [at 14]. In essence, to be operational, arbitration requires a controversy or a dispute. Arbitration remains widely used in South Africa to settle construction- and other infrastructure-related disputes. Arbitration also has had a long presence in South Africa jurisprudence. In fact, legislative provisions for arbitration can be traced to as early as 1898 with the promulgation in the then-colonial South Africa of various arbitration legislations including The Arbitrations Act, 1898 (Act No. 29 of 1898) of the Cape of Good Hope, The Arbitration Act 24 of 1898 (Natal), The Transvaal Ordinance Act 24 of 1904, and The Arbitration Proclamation Act 3 of 1926 of South West Africa. The importance of arbitration cannot be overemphasized with a number of high-profile arbitration proceedings becoming subject to intervention by the courts in South Africa.

Arbitration as an Alternative Dispute Resolution Mechanism

Arbitration essentially serves as an alternative means of settling disputes to litigation. Its alternative status emanates from its focus on providing an avenue to resolve disputes outside the auspices of national courts. However, the framing of alternative is not restricted to matters of control in that arbitration can under specific conditions or circumstances be conducted or annexed by the courts (Hensler 1990; Orenstein 1999). Despite the notion that arbitration is a creature of contract (del Prado 2021), arbitration can also be mandated by the legislation or by the courts. For example, in South Africa, in terms of legislation, labor disputes are subject to arbitration on the basis of the Labour Relations Act by the Commission for Conciliation, Mediation and Arbitration (CCMA). In terms of the courts, procedural rules by the Magistrates Court (Rules 18 and 25 of Magistrates Court Rules; Department of Justice and Constitutional Development 2010), High Court (Rule 37 of the High Court Rules; Department of Justice and Constitutional Development 2009), and Section 38 of the Superior Courts Act 10 of 2013 (for the Supreme Court of Appeal and the Constitutional Court of South Africa) all make some form of provision for the courts to mandate disputing parties to explore alternative dispute mechanisms.
Essentially, there are key attributes of arbitration that make it alternative to litigation. A review of the literature suggests that these attributes include (1) independence of disputing parties (Christie 1994; Tobing et al. 2016), (2) procedural flexibility and informality (Tripp 1949; Kaczmarek 2000), (3) quicker resolution time (Delikat and Kleiner 2003) and lower costs (Kritzer and Anderson 1983), (4) attitude toward privacy and confidentiality (Bennett and Hodgson 2016), (5) standards and expectations (Sturges 1960), (6) nonuse of precedent (Kaufmann-Kohler 2007; Weidemaier 2010, 2011), (7) the appointment of judges and arbitrators (Sturges 1960), and (8) the authority (Tuck 2008), immunity (Carroll 1991; Truli 2006; Hebaishi 2014), and independence of arbitrators (Horn 2014). In the next section of the paper, we briefly discuss the notion of vacatur within the context of finality principle.

Arbitration Vacatur

Terminology

For the purpose of this paper, it is observed that there are a number of interchangeable terms that can be employed when discussing arbitration vacatur. These include vacation. Generally, when a judgment “is vacated, the effect is to nullify the judgment entirely and place the parties in the position of no trial having taken place at all” (United States v. Lawson and United States v. Williams). For those reasons, “a vacated judgment is of no further force or effect” (Simpson v. Motorists Mut. Ins. and United States v. Williams). Herein, the term vacatur is employed to refer to instances where the courts in their supervisory role have sought to make null and void an arbitration award. Other terms include nullifying, which refers to an instance when a court declares that an earlier arbitration award has no legal effect and also no binding force; voiding, on the other hand, refers to the process of ensuring that an arbitration award has no legal effect.
When an award is declared null and void, it implies that the law treats the matter as if it never happened or existed in the first place. An arbitration award that is declared null and void cannot be rectified in order to become valid. Neither can such an award be validated by reason that it has been partly fulfilled. Under South African jurisprudence, an arbitration award can be declared null and void, ab initia, or ipso iure.1 An award is null and void ipso iure at law, meaning that the award is null and void even at the absence of any effort by a party to set it aside. On the other hand, an award is null and void ab initia when, at the very onset of efforts to set the award aside, the specific award is treated as invalid.

Functions

The literature suggests that the original function of vacatur in law was to expunge from the public domain all records of judgments that were deemed defective (Purcell 1997). Thus, vacatur was the privilege of the appellant courts. The consequence of vacatur is that it preempts the potential consequences of res judicata or collateral estoppel (Fisch 1991). The need to expunge or remove such records of judgments stems from various reasons, including the need for the courts as part of their general and supervisory review powers to prevent truly defective judgments from inadvertently forming part of precedent (stare decisis). Once a court grants vacatur, it is deemed that the original award ceases to have any legal effect. Vacatur essentially means that a judgment has been erased and never happened. In civil litigation, it will be deemed that that judgment ceases to have any impact on precedence as courts will be obliged to erase the judgment from records (Purcell 1997). Despite intricate differences existing between these legal terms, it is argued that there is an appearance of interchangeability. Thus, while in this study reference is made to arbitration vacatur, it is used in the broadest sense, using the words of the US Supreme Court, to arbitration awards that have been “absolutely vacated, annulled, made void, set aside, so that the same shall have no further effect whatever” (Lawrence G. Graham and Donald D. Scott v. The LA Cross & Milwaukee R.R Co. and Salah Chamberlain and The Milwaukee & Minnesota R.R Coo. v. Selah Chamberlain).

South African Perspective

The idea that an arbitration award represents a final, conclusive, and binding resolution is an essential attribute of arbitration as a dispute resolution mechanism. In South Africa, this principle (of finality) is espoused in national domestic commercial arbitration legislation in the form of the Arbitration Act 42 of 1965. It has also been emphasized in domestic case law of not only the Supreme Court of Appeal, but also the Constitutional Court of South Africa (“the Constitutional Court”), which is the highest court in the country. However, while the finality principle is a central attribute of arbitration, there are both legislative/statutory and common law grounds for a court of competent jurisdiction to impeach this principle. In South Africa, there are two legislative/statutory avenues that can be employed to impeach the finality principle. The first avenue is through Sections 33 and 34 of the Constitution of the Republic of South Africa. The second avenue that can be employed to impeach the finality principle can be found in Sections 28 and 33 of the Arbitration Act 42 of 1965. Common law grounds for impeaching the finality principle are much more nuanced. However, based on international comparative case law, there are approximately six such avenues available, including (1) violation of essence (Gentry 2018; Tompkins 2018), (2) manifest disregard of the law (Yates 2018), (3) illegality (Stalker et al. 2016; Polkinghorne and Volkmer 2017), (4) arbitrariness and capriciousness (Breger 1996; Hayford 1996), (5) complete irrationality (Hayford 1996, 1998a, b), and (6) public policy (Becker and Kleyn 1989; Arfazadeh 2002; Drummonds 2012; Badah 2016).
Under South African law, parties to a domestic arbitration proceeding who are dissatisfied with its outcome generally have two options; either (1) to accept the finality of the award or (2) to seek relief in the form of vacatur. If they choose to seek relief, there are generally two avenues open to them (Gurian 2016). First, although, arbitration awards in general are not subject to appeal, they can seek to appeal the arbitral award through, for example, an arbitration appeal tribunal (Platt 2013) or the courts depending on contractual provisions. The basis for such appeals is Section 28 of the Arbitration Act 42 of 1965, which states that appeals are foreseeable if such an exception is expressed and stipulated within the original agreement. Disputing parties who are dissatisfied with the outcome of arbitration proceedings may alternatively seek judicial review in the form of vacatur. Judicial review operates on the notion that private parties to a dispute cannot contract out the rights of national courts to scrutinize and review awards obtained through arbitration (Van Ginkel 2002). The basis for vacatur in this instance is Section 33 of the Arbitration Act 42 of 1965, which sets out three very narrow grounds for annulling or nullifying (canceling) or vacating (canceling and replacing) the award based (Gurian 2016). Judicial review on the basis of the legislative provisions set out in Section 33 of the Arbitration Act 42 of 1965 enables the court, through its inherent oversight, review, and supervisory powers (Hamilton and Slutsky 2017), to review the merits of an arbitral proceeding, and if deemed necessary to annul and set aside awards that flow from its proceedings. Unlike appeals that may hear the entirety of the dispute again, judicial review of arbitration awards operate within very tightly defined parameters.
In the next section, we set out the principal school of thought guiding our study, which is law and society.

Law and Society

Legal studies can be categorized into approximately three distinct schools of thought. The first is analytical jurisprudence (Stone 1946) also referred to as law and logic (Stone 1946; Twining 2005; Lacey 2015), which encapsulates methods of legal study that focus exclusively on the “application of a range of techniques of analysis to issues of legal theory” (Twining 2005). The second is justice or jurisprudence, also referred to as law and justice (Stone 1946), and the third is sociological jurisprudence, also referred to as law and society (Stone 1946; Krygier 1982; Teitelbaum 1985; Suchman and Edelman 1996; Cotterrell 1998, 2002; Nonet et al. 2017). In all three schools of thought, legal studies can generally progress through either key concept theory building (Twining 1979, 2005) and doctrinal work (Bell 2016) or through a general hypothesis and associated testing of a phenomenon of legal discourse and/or interest. Ziegler (1988) opines that there are two approaches that can be employed for such test of phenomenon: (1) casual observation or (2) empirical studies.
The underlying school of thought adopted in this study is sociological jurisprudence—in other words, law and society.
Our study is framed within the law and society school of thought for two main reasons. The first is its test for success, which is intellectual leadership. Cotterrell (2009) identified this as being its ability to provide broad but concise and plausible explanations and interpretations (through empirical studies) of specific legal phenomena. The second reason for adoption of this philosophy is because the law reflects the society within which it operates (Tamanaha 2001), so it is likely to “remain unintelligible when interpreted in a non-contextual manner which excludes their social, political and policy dimension[s]” (Charlesworth 2007, p. 35). In effect, law and society represents a much more balanced approach to understanding how the law contributes to the framing of society (Cotterrell 2002). This is particularly relevant to arbitration, noting that, as in other forms of alternative dispute resolution, there is a limited monopoly of the state in resolving disputes within the society.
Researchers who adhere to the law and society school of thought engage in research by drawing on ideas rooted in the social sciences to explain, predict, and understand phenomena (Trubek 1972; Teitelbaum 1985). Central to the law and society school of thought is the idea that the legitimacy of any law is largely determined not by the authority of the state, but by the relevancy of laws to the society within which it is set to operate (Ehrlich and Ziegert 2017). As noted by Cotterrell (1998), understanding the law entails understanding its social context. For any society to exist in harmony, it requires a means of controlling conflict and maintaining order through rules (Jenks 1923; Sunstein 1996; Friedman 1996; Ehrenberg 2016; Vago and Barkan 2017). Essentially, legal systems do not, as Friedman (1996) posits, “float in some cultural void, free of space and time and social context; necessarily, they reflect what is happening in their own societies.”
The law and society school of thought emphasizes that because societal values are constantly shifting, there is a need for constant readjustment of legal principles and logic. It rejects the abstract and instrumental/ purposive nature of the law by emphasizing that the law must adhere to natural and/or nonlegal reasons (Pound 1911). Cotterrell (1998) explains that there are three main assumptions core to the notion of law and society: (1) that law is purely a social construct that can best be understood through the nature of the society and the relationships that exist between individuals within a social group, (2) that this social construct is best understood through empirical studies rather than abstract theories, and (3) that this social construct is best understood through rigorous systematic analysis (Cotterrell 2002) that seeks to broaden and provide a much wider perspective of how the law is to be understood.
While this no doubt appears beneficial to understanding the society within which the law operates, it must however be noted that the law and society school of thought has attracted some criticism. For example, the notion of a sociological jurisprudence or law and society has not been widely accepted by some scholars (Kelsen 1991). More specifically, Kelsen (1991) claims that sociology “does not describe the creating behaviour and law-observing or law-violating behaviour.” Other criticisms of this school of thought have been related to its methodological approach. For example, while noting the inseparability of law and society, Donoghue (2009) opines that the current approach to this philosophy entailed the exploration of formal legal rules on their own and then efforts by researchers (Cotterrell 1998, 2002) to show a connection to social factors. Instead, Donoghue (2009) contends that law and society studies should be fused for the purpose of analysis and appraisal. Cotterrell (2009), himself one of the proponents of this philosophy, claims that the philosophy may be unable to support cross-cultural, jurisdictional, and transnational studies because the philosophy construes the law as a means of the state to undertake social control.
Understanding the society within which the law operates allows researchers to understand the nature of the institution of arbitration (Carlston 1952; Sayed 2008; Gaillard 2015; Jemielniak and Kaczmarczyk 2016). The law and society school of thought represents a viable means of exploring arbitration because how arbitration is framed and operates in different jurisdictions tends to be constrained by the prevailing social norms (Abu Sadah 2009). There are further considerations for the law and society school of thought as applied to arbitration. For example, arbitration can serve as a foundation of societal control and governance (see Ojiako 2019; AlRaeesi and Ojiako 2021; Ojiako et al. 2021). In addition, despite supposedly being a creature of contract, it is a procedure regulated by national legislative provisions. In addition, the law and society school of thought is manifest in arbitration in that its process (despite being private) must espouse socially constructed views of fairness (Desierto 2015). More specifically, arbitration demands, even when disputes are resolved privately, that its proceedings are conducted in a manner that is transparent and consistent and affords disputants the “minimum procedural requirements of equality of treatment and natural justice i.e., reasonable opportunity to be heard and to present one’s own case” (Triulzi Cesare SRL v. XinyiGroup).
In the next section, we set out to elucidate the theoretical foundations of arbitration as relates to its finality principle and vacatur.

Theories of Arbitration

Role of Theory in Research

The main emphasis of theory is to address the question of why (Sutton and Staw 1995). Theory plays a major role in research because “without theory, research is impossibly narrow. Without research, theory is mere armchair contemplation” (Silverman 2005). In the context of this study, we see theory as representing an organized series of assertions that serves as a means of ensuring that all knowledge drawn from existing literature is combined into a single and concise body of applicable knowledge (Weick 1995; Wacker 1998, 2004).
As a discipline, although law does not possess a theory (Ziegler 1988), nor does it maintain precise disciplinary boundaries (Herget 1984) or methodologies (Levit 1989), understanding theory in arbitration is critical to our framing of the mechanisms of arbitration because such theory or theories represent the overarching scholarly attitude of arbitration as a dispute resolution mechanism (Yu 2008). Theory serves as the essential supporting structure for arbitration research (Ziegler 1988; Cownie 2000) in that how researchers examine arbitration-related problems and what they construe as relevant to those problems are all determined by theory (Feinman 1989). Theory also serves to provide viable and plausible enumeration of phenomena (Levit 1989). The literature alludes to theories being formulated to support the explanation, prediction, and understanding of phenomena (Cownie 2000). Ultimately, the function of theory is to serve as a prism or lens through which one can objectively view and understand topics of interest (which in this case is arbitration) and, in the process, answering the why, when, and how questions on the occurrence of a phenomenon (Walker et al. 2015). DiMaggio (1995) summarizes three main functions of theory as, first, to serve as a basis of generalization of phenomena (occurrences or non-occurrences); second, to serve as a series of assumptions capable of explaining and providing detailed insights and deriving logical deductions into specific phenomena (occurrences or non-occurrences); and third, to serve as a narrative capable of accounting for such phenomena (occurrences or non-occurrences). Briefly, these relevant theories, which will be discussed within the context of three seminal South African construction cases [Telcordia Technologies v. Telkom and Hubbard v. Cool Ideas (Cool Ideas 1) decided by the Supreme Court of Appeal and Lufuno Mphaphuli v. Bopanang Construction and Cool Ideas v. Hubbard (Cool Ideas 2), both heard by the Constitutional Court of South Africa], are now expanded upon.

Jurisdictional or Territorial Theory

The first of such arbitration theories is the jurisdictional theory (Yu 2004, 2008; Alcolea 2020), also referred to as the territorial theory (Paulsson 2011). At the core of this theory (from the perspective of domestic commercial arbitration in construction) is the need for disputants to acknowledge the inherent power of national courts (acting on behalf or as instruments of the state) to supervise the institution of arbitration undertaken within its defined sphere of authority and responsibility (Marchisio 2014). In Cool Ideas 2, the Constitutional Court observed that this power included “confirming or setting aside arbitration awards” [at 59]. The focus of such powers was also observed by the court in Lufuno Mphaphuli v. Bopanang Construction, “the administration of justice” [at 25]. Legal effect to arbitration as a dispute resolution mechanism is dependent on the power exercised by the state holding dominion over that specific jurisdiction (Paulsson 2011). Because the arbitration mechanism does not have any legal effect without state sanction, its entire system must adhere to the law as nationally framed. The critical element of the jurisdictional or territorial theory is that although it recognizes disputant independence (Christie 1994) as relates to, for example, the form of the arbitration proceedings (Tobing et al. 2016) and choice of law (Ababnch 2017), it acknowledges national sovereignty and more specifically the requirement for domestic commercial arbitration as a dispute resolution mechanism to be supervised by any sovereign nation via its national instruments such as national legislation or the courts. Thus, if domestic commercial arbitration contractual provisions in any form whatsoever do conflict with national laws, these national laws—not the contract—take precedence. As observed by the Supreme Court of Appeal in Cool Ideas 1, in arbitration cases, “A court, no matter how well intentioned, is [] not free simply on a whim to act in flagrant disregard of a statutory prohibition thereby rendering the will of the legislature nugatory” [at 15]. There are two reasons for this. First, the state justifies its precedence on the notion that through its supervision, disputing parties are assured that legitimate contractual rights and obligations will be enforced (Zemach and Ben-Zvi 2017). The second reason is that arbitration draws on its legitimacy (and ability to have its awards enforced) from the state that has either derogated powers of the court in limited circumstances to the arbitrator (through legislation) or where judges (as part of their practice) have maintained judicial deference to arbitrators. In Lufuno Mphaphuli v. Bopanang Construction, the Constitutional Court noted that “Arbitrators have no powers to enforce their awards and the effectiveness of the private process therefore rests on the binding, even coercive, powers the state entrusts to its courts” [at 26(b)]. The jurisdictional theory is not widely supported. For example, Brekoulakis (2019) opines that arbitration proceedings and awards flow from fiduciary (that is, the contract between disputants and the arbitrator/arbitration panel) as against judicial powers, which are constitutional powers vested in the courts.
Both Yu (2004, 2008) and Paulsson (2011) opine that the jurisdictional (territorial) theory does not limit the extent to which nations may use specific instruments such as national legislation or the courts to supervise arbitration. Thus, either through legislation or through the courts, various facets of arbitration, such as the contract to arbitrate, its proceedings, the powers of the arbitrator, who can serve and not serve as an arbitrator, and the nature of the awards, are all subject to the supervision. For example, because South Africa is not a double exequatur jurisdiction, arbitration awards are not subject to ratification or confirmation by the courts before being enforceable.

Contractual Theory

The second of such arbitration theories is the contractual theory (Yu 2004, 2008; Alcolea 2020). This theory posits that through an agreement or premise to arbitrate that is legally enforceable (Tsuruda 2017), two or more individuals can create the mechanism for arbitration as a private dispute resolution mechanism primarily supervised by contractual provisions. This theory therefore posits that, on the basis of party autonomy (Ghodoosi 2016) and freedom of contract (Kimel 2001), the state’s jurisdictional power should be limited if not actually superseded or nullified. The Supreme Court of Appeal observed in Telcordia Technologies v. Telkom [at 4] that deference to the principles of party autonomy and freedom of contract is something that South African courts have consistently done since, at the very least, 1898.Being contractual, arbitration in this case therefore implies that its provisions should be binding on the parties and therefore enforceable in a manner less challenging than that of court judgments.
The contract theory of arbitration does not recognize that there is any justifiable basis for domestic commercial arbitration as a dispute resolution mechanism to be supervised by any sovereign nation via its national instruments such as national legislation or national courts (Yu 2004, 2008). Thus, various facets of arbitration, such as the contract to arbitrate, its proceedings, the powers of the arbitrator, who can serve and not serve as an arbitrator, and the nature of the awards, should all be solely subject to the terms of the contract to arbitrate. In a very basic form, the contractual theory of arbitration opines that at the point an individual voluntarily seeks to resolve their dispute privately and in the process exclude any form of interference from the state, the provisions of such contract should be strictly observed and adhered to.
There are perhaps two dimensions to the contract theory of arbitration (Yu 2004, 2008). The first focuses on the actual contract between the two disputants. Here, the contractual theory emphasizes that, prior to being bound to arbitrate in domestic commercial disputes, there must be a contract between the parties encapsulating an agreement to arbitrate.
An important consideration as observed by the Constitutional Court in Lufuno Mphaphuli v. Bopanang Construction [at 220] is that of separability or severability; in effect, whether the contract to arbitrate may be construed to be completely separate from the commercial contract of which it is a constituent element (Czernich 2018). In all senses and purposes, the Constitutional Court in both Lufuno Mphaphuli v. Bopanang Construction [at 220] and Cool Ideas 2 [at 129] has ruled that the fact that the main containing contract is not enforceable does not automatically imply that the agreement to arbitrate within the main contract is also not enforceable. From a contract theory of arbitration perspective, this essentially implies that contracts to arbitrate cannot be indirectly impeached. However, there have been occasions when this doctrine has not stood up. In fact, this position has been the case following the Supreme Court of Appeal’s judgment in North West Provincial Government v. Tswaing Consulting, where it was opined [at 13] that “This conclusion entails that the arbitration agreement also cannot stand. This is for two reasons. First, the arbitration clause was embedded in a fraud-tainted agreement the province elected to rescind. The clause cannot survive the rescission, and the agreement purporting to give effect to it is still-born.” Examining the context of the judgment, however, does suggest that the court was not only concerned that “First the arbitration clause was embedded in a fraud-tainted agreement” [at 13], but also that “Second, the arbitration agreement was in any event signed by officials acting on behalf of the province who did not know of the fraud when they signed” [at 14]. The second of the two dimensions to the contract theory of arbitration is that there must be a contract to arbitrate with the arbitrator. Having such a contract inevitably means the arbitrator becomes a party to the arbitration proceedings (Yu 2004, 2008) with fiduciary duties to the disputants (Brekoulakis 2019).

Hybrid Theory

The third of such arbitration theories is the hybrid theory (Yu 2005, 2008; Fan and Jemielniak 2016; Alcolea 2020). At the essence of the hybrid theory is a rejection of both the jurisdictional theory (and its emphasis on state sovereignty, the inherent power of the state to supervise arbitration as an institution through various instruments such as national courts) and the contractual theory (and its emphasis on individual independence and/or freedom of contract, party autonomy, and the rejection of the jurisdictional theory). Essentially, the hybrid theory is a theory of compromise that seeks to draw upon, balance, and mix those desirable elements—one may claim—of both the jurisdictional theory and the contractual theory (Grant 2016). In the context of domestic commercial arbitration, the hybrid theory will acknowledge that arbitration originates from a private contract and that disputants maintain autonomy/independence (contractual theory); however, at the same time it will also acknowledge that an agreement to arbitrate, its procedures, and the award that emanates from such an agreement must occur within associated domestic public policy norms and values, expectations, and laws (jurisdictional theory). Without this being the case, such awards become unenforceable and, where challenged, subject to vacatur.

Autonomous (Pluralistic) Theory

The fourth of such arbitration theories is the autonomous or pluralistic theory of arbitration (see Carlston 1952; Lew 2006; Paulsson 2011; Alcolea 2020). At the core of this theory of arbitration is the notion of an institution that is self-created, self-regulated, and self-focused, operating outside the legal framework of the state (Michaels 2013). The autonomous theory of arbitration departs from the approach adopted by the hybrid theory. More specifically, the autonomous theory of arbitration does not, as in the case of the hybrid theory, seek to draw upon specific elements of either the jurisdictional theory or the contractual theory. Instead, the autonomous theory seeks to develop a theory of arbitration that is independent (of jurisdictional constraints) and therefore is truly reflective of the desirable elements of arbitration over litigation (Dayton and Takahashi 2018). It has been posited that these elements include flexibility (Dayton and Takahashi 2018), speed (Delikat and Kleiner 2003, p. 85), privacy and confidentiality (Bennett and Hodgson 2016), disputant independence (Christie 1994) (for example, determining mode of proceedings; Tobing et al. 2016), determining seat arbitration (Webster 2014), engaging arbitrator/s (Ababnch 2017), and choice of law where applicable to a domestic context. Proponents of the autonomous theory of arbitration claim that when arbitration is truly autonomous, its outcomes become more predictable as its proceedings and outcome become less hampered or constrained by national law and likely interference by national courts (Theofrastous 1999).
The autonomous theory firmly rejects the jurisdictional theory on the basis that it not only contradicts the contractual theory, but also that it may be difficult to draw conceptual lines with the contractual theory. It also rejects the contractual theory on the basis that it not only contradicts the jurisdictional theory, but also that it may be difficult to draw conceptual lines with the jurisdictional theory and perhaps, as expected, it also rejects the hybrid theory on the grounds that it appears to suggest that its scope of application is not limited (Yu 2005, 2008). By rejecting not only the jurisdictional theory, but also both the contractual theory and the hybrid theory, the autonomous theory takes the position that arbitration is beyond the limits of specific national framing (Paulsson 2011). In effect, arbitration is both jurisdictional-free (in effect, delocalized; Paulsson 2011) and contractually free. Instead, arbitration represents an independent delocalized institution with its own recognizable norms, processes, and procedures. Autonomy in this context supposes that arbitration contracts, procedures, and the resultant awards are not only recognizable but also accepted and enforceable, irrespective of national jurisdiction (Luttrell 2009). Based on these, vacatur represents a major threat to the notion of arbitration as autonomous because vacatur serves as a route through which the autonomy of arbitration can be impeached (Khan 2013).
Critics of the autonomous theory of arbitration highlight that arbitration cannot in reality be autonomous or pluralistic (see Michaels 2013; Mance 2016). This is so because, with reference to the Constitutional Court’s observation in Lufuno Mphaphuli v. Bopanang Construction, for arbitration to be effective, it relies on the state for enforcement. A truly autonomous notion of arbitration that Michaels (2013) construes as a myth will mean that the legal authorities in the jurisdiction in which an arbitration proceeding is either held or enforced will relinquish interest in the outcome of such proceedings. Such a scenario is unlikely for a number of public policy reasons, especially where or when it is likely that the enforcement of the award is largely to be undertaken by state institutions or will impact the rights of individuals or entities within its jurisdiction. As observed by the Constitutional Court in both Lufuno Mphaphuli v. Bopanang Construction and Cool Ideas 2, there must always be an expectation that the courts are empowered to pierce the view of autonomy of arbitration, but only on grounds that are reasonably strict.

Concession Theory

The fifth of such arbitration theories is the concession theory (Yu 2005, 2008). At the heart of the concession theory is the notion that the institution of arbitration is only able to function in a practical and meaningful manner if the state concedes some of its sovereign powers to the institution (Paulsson 2011). In effect, the concession theory accepts key elements of the jurisdictional theory, in that it accepts that states holding dominion over a specific jurisdiction have the right to supervise the institution of arbitration utilizing various instruments such as legislation and national courts (in the form of judicial deference). It also accepts that arbitration will not have any legal effect without state sanction. Such sanction can take various forms. In some instances, the state has utilized legislative power to allow awards by arbitrators to be construed as the rulings of national courts. An example is in South Africa via provisions of both Sections 28 and 31 of the Arbitration Act 42 of 1965. In effect, at the core of the concession theory is the idea that, for numerous reasons (including the need to provide relief for courts), the state has conceded some element of judicial power to arbitrators. In the process, arbitration has become a judicialized (Stipanowich 1987) and quasi-legal process.

Conclusion

In this paper, we set out to briefly outline five key theories of arbitration, namely, (1) jurisdictional or territorial theory, (2) contractual theory, (3) hybrid theory, (4) autonomous (pluralistic) theory, and (5) concession theory. These five theories, we opined, served as the foundation for a more detailed and weighty understanding of the nature and mechanisms of domestic commercial arbitration in South Africa, especially as it relates to the finality principle. In particular, these five theories not only serve as a means of ensuring that all knowledge drawn from existing literature on finality and vacatur are combined into a single and concise body of applicable knowledge, but also provide us with the theoretical foundations to better appreciate how the courts go about limiting via vacatur the difference granted to arbitration by the state to settle disputes conclusively.

Footnote

1
van der Westhuizen v. Engelbrecht and Spouse (1942, O.P.D. 194), Reported. 1943.

Data Availability Statement

No data, models, or codes were generated or used during the study.

References

List of Cases

Bidoli v. Bidoli and Another (2011 (5) SA 247 (SCA)), [2011] ZASCA 82; 436/10 (May 27, 2011).
Cool Ideas 1186 CC v. Hubbard and Another, [2014] ZACC 16 (June 5, 2014).
Hubbard v. Cool Ideas 1186 CC, (580/12) [2013] ZASCA 71 (May 28, 2013).
Lawrence G. Graham and Donald D. Scott v. The LA Cross & Milwaukee R.R Co. and Salah Chamberlain.
Lufuno Mphaphuli & Associates (Pty) Ltd. v. Nigel Athol Andrews and Bopanang Construction, CC CCT 97107 [2009] ZACC 6.
North West Provincial Government & Another v. Tswaing Consulting & Others, 2007 (4) SA 452 (SCA).
Shoprite Checkers (Pty) Ltd v. Commission for Conciliation, Mediation and Arbitration and Others, (1998) 19 ILJ 892 (LC); [1998] 5 BLLR 510 (LC) [at 89].
Simpson v. Motorists Mut. Ins. Co., 494 F.2d 850, 854 (United States Court of Appeals, Seventh Circuit).
Telcordia Technologies Inc. v. Telkom SA Ltd., [2006] ZASCA 112; [2006] 139 SCA (RSA); 2007 (3) SA 266 (SCA); [2007] 2 All SA 243 (SCA); 2007 (5) BCLR 503 (SCA) (November 22, 2006).
The Milwaukee & Minnesota R.R Coo. v. Selah Chamberlain [Supreme Court of the United States, 1866], cases decided in US Supreme Court, 70.
Triulzi Cesare SRL v. XinyiGroup (Glass) Co. Ltd., [2014] SGHC 220.
United States v. Lawson, 736 F.2d 835 (2d Cir.1984).
United States v. Williams, 904 F.2d 7, 8 (United States Court of Appeals for the Seventh Circuit, 1990).

List of Statutes

Superior Courts Act 10 of 2013.
The Arbitration Act 1996 (United Kingdom).
The Arbitration Act 42 of 1965 (South Africa).
The Labour Relations Act, 66 of 1995 (South Africa).

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Journal of Legal Affairs and Dispute Resolution in Engineering and Construction
Volume 15Issue 1February 2023

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Received: Apr 8, 2022
Accepted: Jul 25, 2022
Published online: Oct 20, 2022
Published in print: Feb 1, 2023
Discussion open until: Mar 20, 2023

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