Gautrain case highlights the benefits of alternative dispute resolution
02 December 2013
Gautrain case highlights the benefits of alternative
The ruling by the Arbitration Federation of South Africa last week
finally resolved the long-running dispute between the Bombela Consortium, which
constructed the Gautrain, and the Gauteng Management Agency. It demonstrates
the key role that alternative dispute resolution is increasingly playing in
South African business.
The need to get the Gautrain operational before the World Cup gave rise
to some significant contractual disputes. The disputes concerned a number of
issues, and the overall cost of the project escalated from an estimated R20
billion to R34 billion.
With South Africa’s sky-high legal fees – higher than those in
Washington or New York, according to Minister of Justice, Jeff Radebe – and a very complex set of factors to consider, the
parties initially resorted to mediation. Using specialised construction
arbitrators, they were able to resolve 90 percent of the disputes. The
unresolved 10 percent, which largely concerned the leaking of water into the
tunnel, was the subject of the Arbitration Federation’s ruling yesterday.
"Cases like this are very complex and consume vast amounts of money and
time, as well as running the risk of severe reputational damage during a
hard-fought legal battle. That’s why such methods are enshrined in King III,
which recommends directors ensure that the company has in place mechanisms
through which to resolve commercial disputes effectively and without incurring
unnecessary cost,” says Ansie Ramalho, CEO of the Institute of Directors in
Southern Africa. "In practice, this means alternate dispute resolution via
mediation, conciliation or arbitration.”
Mervyn King, chairperson of the King Committee confirms. "Alternative
dispute resolution has become an important element of good governance because
it enables directors to resolve a dispute quickly and cost-effectively,” he
Another important benefit for companies is that arbitration is a private
process, which means that confidential company information does not enter the
public realm, as it does during the conventional legal process. Companies who
have their dirty linen washed in public via a court case almost inevitably
suffer some reputational damage.
Michael Kuper SC, chairperson of The Arbitration Foundation of Southern
Africa (AFSA), explains that the Constitutional Court has found that private
arbitration is not incompatible with the inalienable right of all citizens to
have their disputes settled in the courts – provided that both parties opted for
arbitration. This decision aligns South Africa with the rest of the world,
where arbitration has come to play an increasingly important role.
"The United Nations has called arbitration the most important legal
development since the Second World War,” Kuper says. "Here in South
Africa, it has grown in importance since a robust, objective process
administered by a neutral body was created via the founding of AFSA.” AFSA is
the fruit of cross-disciplinary collaboration between all interested parties,
including advocates, attorneys, accountants and business. It offers
parties in dispute an accepted process and trained arbitrators to shortcut the
time and expense of the legal process.
Kuper argues that as trade between African countries grew, it was becoming
essential to create a pan-African arbitration body through a similar
collaborative process. "At present, companies operating across Africa have no
‘litigation safety nets’,” Kuper says. "Multinationals must either rely on
litigation in the courts of the country in which the dispute occurred –
something that is extremely risky for them—or on extremely expensive
arbitrators from Europe or America.”
AFSA has launched just such an initiative, Africa ADR, to create an
African arbitral authority in collaboration with players across the continent.
"We need to create an African solution that will support Africa’s continued
business growth by providing a way to resolve commercial disputes quickly and
cost-effectively,” Kuper concludes.
 "SA’s legal fees too high—minister”, The
New Age, 22 May 2012, available at http://thenewage.co.za/mobi/Detail.aspx?NewsID=51402&CatID=1007.