Gautrain case highlights the benefits of alternative dispute resolution

Gautrain case highlights the benefits of alternative dispute resolution

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[1] – 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 says.

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.

[1] "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.