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Private Arbitration Alternative Dispute Resolution

We have been noting an up rise in the inclusion of private arbitration clauses in employment contracts offered to employees.  In this newsletter we will be exploring what private arbitration entails and the rules and principles that governs this form of alternative dispute resolution.
Private arbitration is usually prescribed by a clause in a contract between parties, whether a commercial contract, employment contract or other forms of contracts.  An example of such a clause would be:
“In the event that there be any dispute whatsoever between the Company and the Executive of and concerning the termination of the Executive’s employment with Company, including any dispute concerning conditions applicable to any such termination, this shall be determined by arbitration and in the event that the Executive and the Company are unable to agree on the appointment of an arbitrator, the arbitrator shall then be appointed by the President for the time being of the Law Society of the Northern Provinces.  Furthermore, it shall be in the discretion of the arbitrator appointed to fix the rules applicable to the arbitration in order that it be held and completed as expeditiously as possible.”

That the arbitration shall be held with only the Parties and their representatives thereat and save where otherwise specifically provided in this clauses 21, in terms of the Arbitration Act No. 42 of 1965.  It being the intention that the arbitration shall, where possible3, be held and concluded within 21 (twenty one) working days after it has been demanded.
the arbitrator shall be:
an arbitrator provided from a list of practising arbitrators of the Law Society of the region in which the dispute arose, mutually agreed upon between the attorneys representing the Parties who are the subject of the arbitration or if they cannot agree, by the secretary for the time being of the Law Society.
any Party wishing to submit to arbitration (the First Party) shall by written notice to the other (the Receiver)notify the other of his/her wish to arbitrate and in such notice, shall submit a panel of 2 persons out of whom the receiver may choose 1, to act as arbitrator.  Within 7 days of receipt of such notice, the Receiver shall deliver notice in writing to the First Party choosing one persons out of the panel submitted by the First Party as his choice of arbitrator.....”

As the CCMA, Bargaining Council and Labour Court roles are clogging up; private arbitration is beginning to play a more prominent role in dispute resolution.  This is due to the following benefits private arbitration can offer the parties to a dispute:
•    The parties choose who to appoint to arbitrate the dispute;
•    The arbitrator’s decision is binding on the parties, which brings an end to the dispute, except if the award is reviewable in terms of section 33 of the Arbitration Act;
•    The parties may determine the rules and procedure to be followed during the private arbitration;
•    The resolution is speedy and private

In recognising the legitimate role of private arbitration  the Constitutional Court in the case of Lufuno Mphaphuli & Associates (Pty) LTD vs Nigel Athol Andrews and Bopanang Construction CC,said:
"[197] Some of the advantages if arbitration lie in its flexibility (as parties can determine the process to be followed by an arbitrator including the manner in which evidence will be received, the exchange of pleadings and the like), its cost-effectiveness, its privacy and its speed (particularly as often no appeal lies from an arbitrator’s award, or lies only in an accelerated form to an appellate arbitral body).In determining the proper constitutional approach to private arbitration, we need to bear in mind that litigation before the ordinary courts can be a rigid, costly and time-consuming process and that it is not inconsistent with our constitutional values to permit parties to seek a quicker and cheaper mechanism for the resolution of disputes."
However the Constitutional Court also found that section 34 of the Constitution, that ensures the right to access to court, is not invoked in cases of private arbitration.  The Court said that:
“Section 34 that protects the right of access to court, does not apply to private arbitration proceedings and that a person who elects to refer a matter to private arbitration elects not to exercise his or her right under section 34. The section 34 right is aimed at ensuring that the state provide courts and other fora for the resolution of disputes. Where private parties employ another method of dispute resolution section 34 is not relevant”

Private arbitration is furthermore regulated by the Arbitration Act 42 of 1965. In terms of the Arbitration Act arbitration awards are binding.  However section 33 of the act makes provision for the grounds on which the award may be set aside:

“Setting aside of award
(1) Where—
(a)     any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or
(b)     an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers; or
(c)     an award has been improperly obtained,
the court may, on the application of any party to the reference after due notice to the other party or parties, make an order setting the award aside.”

A request to set aside an arbitration award must be brought within six weeks of the award being made by the arbitrator.  In terms of section 31 an arbitration award can be made an order of court
A recent judgement handed down in the Labour Appeal Court,  NUM v Grogan NO (De Beers Geology) [2010] ZALAC 3 (24 February 2010)  has confirmed that private arbitration awards is final and can only reviewed if any of the ground listed in section 33 of the Arbitration Act is present.  The court came to the conclusion that the review grounds listed in section 145 of the Labour Relations Act 66 of 1995 cannot be relied on in private arbitration.

In paragraph 33 the court said the following:
“However, in so far as it may be necessary to decide the issue, I am of the view that the respondent’s Counsel is correct that, since this is a review of a private arbitration award, it can only be reviewed on the grounds set out in sec 33 of the Arbitration Act and not in terms of the grounds set out in sec 145 of the LRA as extended by the judgments of this Court in Carephone and Shoprite Checkers and by the judgment of the Constitutional Court in Sidumo.    In my view, while parties to a dispute are able to give an arbitrator powers which he otherwise does not have in resolving their dispute, they cannot do the same with regard to a court such as the Labour Court which has statutory power to review arbitration award issued by such arbitrator.    Parties to a dispute such as the parties in this case cannot confer on the Labour Court powers to review a private arbitrator’s award on grounds which it otherwise has no power to rely upon to review such an award.    It would be different if there was a provision of the LRA which conferred upon the Labour Court the power to review such an award on any grounds upon which the parties to a dispute may agree. “

The private arbitrator that has been appointed by the parties to a dispute is bound by the judgements delivered by the Supreme Court of Appeal and Constitutional Court and can also turn to our Supreme Court, Labour Courts and Labour Appeal Courts for direction on the application of legal principles.

The parties to the private arbitration must agree on:
•    Who will be appointed as arbitrator;
•    the functions and powers of the arbitrator they have appointed; 
•    the exchange of documentary evidence,
•    the place and time where the arbitration will take place;
•    the need for witnesses and how their presence will be secured;
•    the need for in loco inspection;
•    the right to legal representation

The list above is not exhaustive and the parties can agree on any other terms of the arbitration that is relevant, in line with the Arbitration Act.

In conclusion private arbitration can be a useful alternative dispute resolution mechanism to employ as it is speedy, private and flexible.   In the light of the endorsement it has received from the Constitutional Court and the backlog the CCMA, bargaining councils and our courts are experiencing, it should become the dispute resolution tool of choice.

Mrs. Lezanne Bouwer
(LLB, LLM(labour law)

General Manager: Legal Assistance


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