What Are the Disadvantages of Arbitration? | Key Drawbacks Explained

Arbitration in South Africa is a private, contractually agreed dispute resolution process whose main disadvantages are the narrow statutory grounds for challenging an award (section 31 of the Arbitration Act 42 of 1965 limits set-aside to arbitrator misconduct, gross irregularity, exceeding the arbitrator’s powers, or corruption), the lack of coercive discovery powers compared to the High Court, the upfront cost of arbitrator and administering-body fees (which can outweigh court costs in smaller disputes), limited public transparency because hearings and awards are usually confidential, and the absence of binding precedent because each award binds only the parties to that arbitration. The trade-off is intentional — arbitration exchanges the safeguards of public litigation for speed, privacy, and finality — but the disadvantages become acute when parties agree to arbitrate without understanding that section 31 makes an unfavourable award very difficult to overturn.

How Arbitration Works in South Africa (Statutory Backdrop)

Before walking through the specific drawbacks, it helps to anchor the discussion in the statutes that actually govern arbitration in South Africa. Three pieces of legislation shape how the process works, and each one influences which disadvantages apply in a given matter.

• Domestic arbitration in South Africa is governed by the Arbitration Act 42 of 1965, which sets the framework for the parties’ agreed procedure, the arbitrator’s powers, and the limited grounds on which an award can be challenged.
• International arbitrations seated in South Africa fall under the International Arbitration Act 7 of 2017, which incorporates the UNCITRAL Model Law, including the Article 34 grounds for setting aside awards.
• Foreign arbitral awards are recognised and enforced in South Africa under the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977, which gives effect to the New York Convention.

Arbitration is a creature of contract. The parties’ arbitration agreement defines the seat, the rules (often AFASA, UNCITRAL, or ad hoc), the number of arbitrators, the language, and the governing law. Courts generally cannot override the parties’ choice to arbitrate. Many commercial arbitrations seated in Gauteng are run under the rules of the Arbitration Foundation of Southern Africa (AFASA), whose institutional rules provide the procedural layer the statute itself does not fully specify.

Disadvantage 1 — Limited Rights of Appeal and Narrow Grounds to Set Aside

An arbitration award in South Africa cannot be appealed on the merits. The only way to challenge it is to bring a set-aside application on tightly defined statutory grounds.

• Under section 31 of the Arbitration Act 42 of 1965, an award can only be set aside on limited grounds: arbitrator misconduct, gross irregularity in conducting the proceedings, the arbitrator exceeding their powers, or corruption — narrower than the appeal grounds available in a High Court matter.
• Under the International Arbitration Act 7 of 2017, the Article 34 grounds incorporate the UNCITRAL Model Law list (incapacity, invalid arbitration agreement, lack of proper notice, excess of jurisdiction, procedural impropriety, public-policy conflict) — still narrow in practice.
• The Constitutional Court has confirmed the strong public-policy deference to arbitration in Telcordia Technologies Inc v Telkom SA Ltd [2007] ZACC 1 and subsequent decisions, which means courts will not re-hear the merits even where they might have decided the case differently.
• Practical effect: an unsuccessful party cannot appeal on errors of fact or law the way they could in a magistrates’ or High Court trial.

For commercial parties who prize finality, this narrowing is a feature. For the party who receives an adverse award on a point of evidence or law, it is the most significant drawback in the entire process.

Disadvantage 2 — Limited Discovery and Coercive Powers

Arbitrators do not have the same coercive powers as a High Court judge. Where a third party controls a key document or a material witness refuses to cooperate, arbitration can stall in a way that court litigation would not.

• Arbitrators cannot compel a third party to produce documents, subpoena a witness who refuses to attend, or commit someone for contempt.
• Pre-hearing document production is usually limited to what the parties voluntarily disclose or what the arbitrator orders under the agreed procedural rules.
• If a key witness or document is in the hands of a non-party, arbitration can stall where a court application would have forced disclosure.
• The High Court’s discovery rules (rule 35 of the Uniform Rules of Court) do not apply in arbitration.

This matters most in disputes where the strongest evidence sits with banks, regulators, employers, or other entities that are not parties to the arbitration agreement.

Disadvantage 3 — Cost Can Outweigh Litigation, Especially in Smaller Disputes

Arbitration is often described as faster and cheaper than court litigation, but that is not always true. The cost structure is fundamentally different, and it does not scale down proportionally with the value of the dispute.

• Arbitrator fees are typically charged hourly or per-day and scale with the dispute value — a three-arbitrator tribunal in a R5–10 million dispute can run into seven-figure fee ranges before the hearing starts.
• Administering-body fees (AFASA, ICC, LCIA, or similar) add a separate cost layer on top of arbitrator fees.
• For smaller disputes (under roughly R1 million), arbitration is often disproportionately expensive compared to magistrates’ court litigation because the same procedural infrastructure (filing, exchange of pleadings, hearing logistics) is required regardless of value.
• Unlike a court matter where the losing party typically pays a portion of costs on a taxed basis, arbitration costs (especially arbitrator fees) are often shared or borne in full by the parties as agreed, and recovery of those fees as part of a cost order is limited.

Disadvantage 4 — No Public Record or Binding Precedent

Arbitration hearings are private, awards are usually confidential (unless both parties agree otherwise), and the award does not create a binding precedent for any other dispute.

• Parties who want their dispute resolved quietly lose the deterrent and norm-setting effect that a reported judgment produces.
• It is harder for litigants to research how similar disputes have been decided — arbitrators are not bound by earlier awards, even within the same administering body’s caseload.
• Court judgments, by contrast, are searchable, citable, and form part of the body of precedent.

For corporates that want consistent treatment of recurring contractual issues, the absence of precedent is a meaningful structural disadvantage.

Disadvantage 5 — Perceived or Actual Arbitrator Bias

Party-appointed arbitrators (the most common model in three-member tribunals) can be perceived as less neutral than a court judge because each side chooses its own arbitrator.

• Although the chair or presiding arbitrator is jointly selected, and most professional arbitrators are bound by ethical codes, the structural appearance of partiality is itself a friction in some commercial contexts.
• Institutional rules (AFASA, ICC) provide removal mechanisms, but invoking them mid-proceeding adds delay and cost.

Disadvantage 6 — Limited Remedies and No Class Mechanism

Arbitrators can grant damages, declarations, and specific performance within the scope of the arbitration agreement, but they cannot grant every equitable remedy a court can, and they cannot consolidate similar claims into a class-style proceeding.

Where a dispute involves many parties with overlapping grievances (typical in consumer or shareholder disputes), arbitration has to be pursued claim-by-claim rather than as a single coordinated process. This is the gap that class-action-style litigation is designed to close in the High Court.

Disadvantage 7 — Finality Cuts Both Ways

The finality that makes arbitration attractive to commercial parties — no appeals on the merits — is also the disadvantage when the award is wrong on the facts or the law, because there is very limited recourse.

Once the award is issued and the time-bar under section 31 has expired, the unsuccessful party’s practical options narrow to enforcement resistance (in narrow circumstances) or compliance.

Comparing Arbitration to Court Litigation

Factor	Arbitration	Court litigation
Right of appeal / set-aside	Very limited (section 31, Arbitration Act 42 of 1965; Article 34 Model Law for international)	Full appeal structure (magistrates’ → High Court → SCA → Constitutional Court)
Discovery / coercive powers	Limited; party- and arbitrator-driven; no subpoena power over non-parties	Full court powers including subpoena, contempt, third-party discovery (rule 35 Uniform Rules)
Public record	Usually confidential	Public judgments (subject to specific protections)
Binding precedent	None — award binds only the parties	Yes — reported judgments form precedent
Typical cost driver	Arbitrator + administering-body fees, hourly or per-day	Court fees plus taxed party-and-party costs
Timeline	Faster for typical commercial disputes	Slower but with more interim remedies available
Privacy	Private by default	Public by default

When the Disadvantages Are Most Acute (and When They Matter Less)

The disadvantages map differently depending on the kind of dispute in question. The list below is a useful pre-arbitration checklist for any South African party weighing whether to include an arbitration clause in a contract.

• Most acute: smaller commercial disputes where cost is disproportionate to the value at stake, consumer disputes where the weaker party needs court protections, public-interest matters where transparency matters, and disputes that genuinely require coercive powers against third parties.
• Matter less: high-value cross-border commercial contracts between sophisticated parties, technology and infrastructure disputes where confidentiality is paramount, and party relationships that need to survive the dispute.

For general commercial litigation that may escalate into High Court motion work, set-aside applications, or award enforcement, a firm with a working general litigation practice can advise on whether arbitration is the right fit before the contract is signed. Burger Huyser Attorneys’ general litigation practice, led by Director Nadine Roesch-Prinsloo across the Roodepoort and Linden branches, fields arbitration-related work (clauses, appearances, and set-aside applications) alongside the firm’s civil-litigation work.

Frequently Asked Questions

Can an arbitration award be appealed in South Africa?

Not on the merits. Under section 31 of the Arbitration Act 42 of 1965, an award can only be set aside on narrow grounds — arbitrator misconduct, gross irregularity in the conduct of the proceedings, the arbitrator exceeding their powers, or corruption. For international arbitrations seated in South Africa, the equivalent grounds are in Article 34 of the UNCITRAL Model Law as incorporated by the International Arbitration Act 7 of 2017.

Is arbitration cheaper than going to court?

Not always. For high-value, complex commercial disputes, arbitration is often comparable in cost to commercial court litigation and may be faster. For smaller disputes (under roughly R1 million), arbitration is frequently disproportionately expensive because arbitrator fees and administering-body fees do not scale down in the same way court fees do.

Can an arbitrator compel a witness to testify?

Arbitrators have limited coercive powers. They can generally require a party to the arbitration to comply with procedural directions, but they cannot subpoena a non-party witness or commit someone for contempt the way a High Court can under the Uniform Rules of Court. Where a key witness is outside the parties’ control, this can be a material disadvantage.

Are arbitration proceedings confidential in South Africa?

Usually, yes. Unless the parties agree otherwise, both the hearing and the award are confidential. This is a feature for parties who want privacy but a disadvantage where transparency or precedent-setting matters.

Do arbitration awards create precedent?

No. Each award binds only the parties to that arbitration. Unlike a court judgment, an arbitral award does not establish a precedent that future arbitrators or courts must follow.

Can a court overturn an arbitration award?

Only in narrow circumstances. A court can set aside an award under section 31 of the Arbitration Act on the limited grounds listed above, or refuse enforcement on public-policy grounds in narrow cases. Courts do not re-hear the merits.

Whether arbitration is the right forum for a particular dispute, or whether to challenge or enforce an award, depends on the specific contract and the facts. Burger Huyser Attorneys’ general litigation practice advises on arbitration clauses, represents clients in arbitration proceedings, and handles set-aside applications under section 31 of the Arbitration Act. To discuss a specific matter, contact the head office in Linden, Randburg on 011 888 0246 (after-hours 061 516 6878) or visit 49 First Avenue, Linden, Randburg, 2194. The firm carries a 4.8/5 average across 250+ Google reviews (Trustindex verified “Top Rated Law Firm in South Africa”) and fields this work across its Gauteng branches.