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[2017] ZASCA 120
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State Information Technology Agency Soc Limited v ELCB Information Services (Pty) Ltd and Another (995/16) [2017] ZASCA 120 (22 September 2017)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not
Reportable
Case
No: 995/16
In
the matter between:
STATE
INFORMATION TECHNOLOGY
AGENCY
SOC LIMITED
APPELLANT
and
ELCB
INFORMATION SERVICES
(PTY)
LTD
FIRST
RESPONDENT
LEON
DICKER NO
SECOND RESPONDENT
Neutral
citation:
State
Information Technology Agency SOC Limited v ELCB Information Services
(Pty) Ltd & another
(995/16)
[2017] ZASCA 120
(22 September 2017)
Coram:
Shongwe
AP, Majiedt JA and Plasket, Tsoka and Rogers AJJA
Heard:
18
August 2017
Delivered:
22
September 2017
Summary:
Arbitration
Award – review – arbitrator alleged to have committed
gross irregularities –
s 33(1)
(b)
of
the
Arbitration Act 42 of 1965
– gross irregularities not
proved – appeal dismissed.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Mabuse J, sitting as court of
first instance):
The
appeal is dismissed with costs.
JUDGMENT
Shongwe
AP (Majiedt JA and Plasket, Tsoka and Rogers AJJA concurring)
[1]
This appeal arises from a judgment and order of the Gauteng Division
of the High Court, Pretoria (Mabuse J) in which it dismissed
a review
application brought by the appellant, State Information Technology
Agency SOC Ltd (SITA), against the respondents, ELCB
Information
Services (Pty) Ltd, and Leon Dicker NO. The court below also granted
a counter-application by the first respondent
which sought an order
that the arbitrator’s award granted on 31 March 2014 be made an
order of court in terms of s 31(1)
of the Arbitration Act 45 of 1965
(the Act). (I shall refer to the parties in this judgment as
appellant and respondent for ease
of reference, as the second
respondent – the arbitrator - did not participate in the
hearing or in this appeal).
[2]
Aggrieved by this decision, the appellant applied for leave to appeal
on the grounds that the court a quo had erred in the following
respects. (It is neccesary to mention the grounds in full for reasons
that will emerge later in the judgment).
‘
1.
In not reviewing and setting aside the second respondent's
arbitration award against the applicant.
2.
In not finding that the second respondent committed gross
irregularities in the conduct of the arbitration proceedings between
the applicant and the first respondent.
3.
In not deciding at all the question whether the second respondent
committed gross irregularities in the conduct of the arbitration
proceedings between the applicant and the first respondent.
4.
In not finding that the
Promotion of Administrative Justice Act 3 of
2000
did not apply where an organ of the state seeks to set aside its
own conduct and that the 180 days period provided for therein did
not
apply thereto.
5.
In not following the decision of this Court per Southwood J in Telkom
v Merid Trading’.
The
appellant did not end there – it added the following in its
application for leave to appeal:
‘
TAKE
FURTHER NOTICE THAT the learned judge's judgement did not resolve all
the issues in dispute between the parties insofar as
the learned
judge did not decide the question whether the second respondent
committed gross irregularities in the conduct of the
arbitration
proceedings between the applicant and the first respondent and that
this issue on its own justifies the hearing of
an appeal’.
The
court below dismissed the application for leave to appeal in respect
of grounds (1), (2), (4) and (5), but granted leave ‘in
respect
of the ground that the court did not deal with the arbitration issue
in its written judgment’.
[3]
The background facts are that the appellant and the respondent
concluded two agreements. In terms of the first agreement, concluded
on 12 March 2006, the respondent was appointed and required to
develop and implement an information management system for the South
African Social Security Agency (SASSA). In short it was for the
procurement of information technology goods and services on behalf
of
the appellant and some other government departments. The second
agreement was purportedly concluded pursuant to a letter dated
11
January 2007 from the Superintendent-General of the Eastern Cape
Department of Health, requesting the appellant to appoint the
respondent to develop a records management system for that
department. The appellant has not been able to locate the signed copy
of the second agreement.
[4]
Clause 25 of the first agreement provided that if a dispute between
the parties was not resolved, such a dispute shall be referred
to
arbitration which would be conducted in accordance with the rules of
the Arbitration Foundation of South Africa (AFSA). The
respondent
relied on an unsigned copy of the second agreement, which it alleged
was concluded by the parties. However, the appellant
denied the
conclusion of the second agreement in the absence of evidence showing
that such an agreement was indeed concluded between
the parties. For
this reason, the appellant contended that there was no arbitration
agreement to arbitrate the respondent’s
second claim.
Therefore, the appellant argued, that it was legally incompetent to
conduct arbitration proceedings in relation to
a claim founded on the
second agreement.
[5]
As a result of the first agreement, the appellant and the respondent
concluded and signed an arbitration agreement on 13 March
2006. It is
important to record that the appellant fulfilled its obligations in
respect of both agreements and duly paid a substantial
portion of
what was due to the respondent. In terms of the first agreement R220
million was payable in aggregate by the appellant
for the services to
be rendered by the respondent and, in terms of the second agreement
the sum of R20.1 million in aggregate for
the services. The
respondent, likewise performed all its contractual obligations in
terms of both agreements, having rendered the
professional services
to the appellant. During the duration of the agreements, the
respondent submitted various invoices to the
appellant for payment,
for which the appellant effected substantial payments. Eventually, on
11 March 2013 the respondent sent
a letter demanding payment, failing
which summons would be issued. On 21 June 2013, the respondent sent
another letter to the appellant
requesting that the matter be
referred to mediation as agreed.
[6]
The respondent lodged a statement of claim as per the arbitration
agreement and a pre-arbitration meeting was held on 1 October
2013.
Both parties were represented by counsel and agreed on various topics
including that there was an arbitrable dispute, that
the issues in
dispute would be those as defined in the pleadings, the delivery of
processes, pleadings and documents, expert witnesses,
rules of
evidence, onus and duty to begin and all other relevant topics. It
was agreed that the arbitration would be held on 21
January 2014 to
24 January 2014. The appellant reserved its right to raise an
objection to the jurisdiction of the arbitrator in
respect of both
claims by no later than 16:00 on 11 October 2013. The objection was
never raised. It was also agreed that the appellant
would deliver its
statement of defence and any counterclaim by no later than 16:00 on 8
November 2013. These documents were never
delivered.
[7]
On 21 January 2014, the hearing was postponed to 3 March 2013 because
of the appellant’s failure to file its statement
of defence. On
this date the appellant brought an application for an order declaring
both agreements constitutionally invalid,
unlawful and unenforceable
and for an order that the arbitration proceedings be stayed or
postponed pending the final determination
of the validity of the
agreements. The essence of this late application was that both
agreements were in contravention of s 217
of the Constitution in that
the appellant did not comply with the procurement procedures
applicable to state procurement of goods
and services in entering
into agreements. This constitutional point had never previously been
raised. On 4 March 2014 the arbitrator
ruled against the appellant,
thus dismissing the application of invalidity with costs on the
attorney and client scale. At this
juncture the appellant and its
legal representatives left the proceedings.
[8]
On 31 March 2014 the arbitrator made an award, without giving reasons
after having considered the evidence of the respondent,
and having
heard counsel for the respondent. As stated, the appellant and its
legal representatives had left the hearing and consequently
no
evidence was led on behalf of the appellant. The appellant was
ordered to pay certain amounts plus interest to the respondent
and
the costs of arbitration. On 9 May 2014 the appellant filed an
application wherein it sought an order reviewing and setting
aside
the arbitration award and also declaring both agreements concluded
between the appellant and the respondent constitutionally
invalid and
unenforceable. As indicated above in paragraph 1 of this judgment,
this application was dismissed and the counter-application
by the
respondent seeking that the award be made an order of court was
granted.
[9]
Leave to appeal in respect of grounds (1), (2), (4) and (5), as
indicated in paragraph 2 above, was dismissed. The court below
reasoned that there were no reasonable prospects of success. However,
it granted leave on the ground that it did not deal at all
with the
arbitration issue in its written judgment. The notice of appeal was
couched in a manner suggesting that the appeal is
against the reasons
for the judgment and not against the order or orders granted by the
court below. The ambiguity created by the
notice of appeal resulted
in the registrar of this court sending a letter to the parties to
prepare and file supplementary heads
of argument dealing with what
appeared to be a defective notice of appeal. In the respondent’s
supplementary heads, the respondent
contended that the appeal should
be struck from the roll. It argued that to allow the appeal to be
heard in circumstances where
the court below did not deal at all with
the arbitration dispute, would mean that this court would be
required, as a court of appeal,
to determine the dispute without the
benefit of the reasoning of the court below. It contended further
that it would be inappropriate,
even if there was a valid notice of
appeal, for this court to determine the arbitration dispute as a
court of first and last instance.
[10]
The appellant on the other hand contended that, in terms of the
Supreme Court of Appeal rule 7(3), the notice of appeal must
state
what part of the judgment or order is appealed against and state the
particular respect in which the variation of the judgment
or order is
sought. The appellant referred this court to
Makings
v Makings
1958
(1) SA 338
(A) at 341F and
De
Jager v Diner & another
1957 (3) SA 567
(A) at 573, which cases concluded that the object of
the rule[s] is to avoid embarrassment and ambiguity especially ‘where
the only issue involved is apparent on the record and there can be no
embarrassment or ambiguity, a strict compliance with the
Rule may be
waived’. The appellant contended further that the only issue
was whether the arbitration award fell to be reviewed
and set aside
on the grounds that the arbitrator committed gross irregularities.
[11]
After this preliminary question was argued by both counsel, this
court heard the parties on the merits, ie whether the arbitrator
made
himself guilty of gross irregularities which justified the reviewing
and setting aside of the award. We decided to hear the
merits for
convenience and having considered that it would be in the interest of
justice to do so. We were also mindful of the
fact that the
respondent conceded that it was not embarrassed by the alleged defect
in the notice of appeal. In its amended
notice of appeal the
appellant specifically abandoned the ground regarding the
constitutional invalidity of both agreements.
[12]
I now turn to discuss whether or not the arbitrator committed gross
irregularities. The appellant raised five grounds before
us on which
it contended that the arbitrator committed gross irregularities.
These are: (a) that the appellant was excluded from
participating in
the arbitration proceedings – thus the appellant was not given
a hearing; (b) that the second agreement
was not signed by the
appellant and thus never came into existence; (c) that the arbitrator
exceeded his powers when he awarded
interest on the sum of
R2 911 676,64 with effect from 11 March 2013 because there
was no demand made for payment of the
said sum on that date; (d) that
the arbitrator failed to properly apply his mind to the evidence
placed before him; (e) that the
arbitrator contravened clause 23.6 of
the second agreement ie by failing to give written reasons.
[13]
Having considered all the grounds relied on for the setting aside of
the award, and having heard both counsel, I conclude that
none of the
grounds raised are valid and meritorious. My reasons follow.
That
the appellant was excluded from the arbitration proceedings
.
[14]
The appellant was not excluded from the arbitration proceedings. Its
representatives chose to leave the hearing after the arbitrator
dismissed its invalidity application. The appellant was required to
submit a statement of defence after the respondent had submitted
its
statement of claim as agreed during the pre-arbitration meeting. But
the appellant failed to do so. The arbitrator ruled that
the
appellant was in default after several opportunities and extensions
had been granted to it. The appellant was in fact given
an
opportunity to cure its default by making an application to that
effect before the arbitration hearing started. The appellant
failed
to do so. On 3 March 2014, when the arbitration proceedings were
scheduled to resume, the appellant was present and represented
by
counsel. The appellant was still in default and still entitled to
apply to cure its default, but again failed to do so. Instead
the
appellant launched an ill-conceived application seeking the
declaration of the invalidity of the two agreements and alleged
that
a proper procurement process had not preceded the conclusion of the
two agreements. As stated (in para 7 above) this was the
very first
time since the agreements were concluded seven to eight years
previously that the appellant alleged the constitutional
invalidity
and unlawfulness of the agreements. The ancillary relief sought was
the staying of the arbitration proceedings pending
the final
determination of the invalidity by a court. This was in my view, a
poorly disguised and unsubstantiated application for
a postponement.
The arbitrator, correctly so, in my view, refused both the primary
and secondary relief sought. The arbitrator
cited article 10.6.2.1
read with 10.2.6.2 of the Commercial Arbitration Rules, which
empowered him to ‘proceed with the arbitration
in the absence
of, or without further hearing, the defaulting party, to its final
conclusion …’. The appellant left
the arbitration
proceedings, on its own volition, therefore it was not excluded as
alleged. The appellant’s counsel was unable
to direct our
attention to any part of the transcript of the arbitration hearing in
which the arbitrator supposedly made a ruling
excluding the appellant
from the hearing.
That
the second agreement was unsigned by the appellant
[15]
The respondent contended that there was a written and signed second
agreement between the parties. The respondent produced
the copy which
it had signed and which, so it alleged, was probably thereafter
signed by the appellant. The respondent set out
various circumstances
pointing to the likelihood that the appellant had indeed signed the
agreement: the respondent had delivered
its signed version to the
appellant; the agreement was thereafter implemented over a period of
more than five years; substantial
sums were paid to the respondent;
the appellant would have undergone annual audits. The appellant on
the other hand contended that
it was unable to locate a signed copy.
The appellant did not say that a signed version never existed, only
that it could not be
located. The principle espoused in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984
(3) SA 623
(A),
becomes
relevant and applicable. The appellant’s version is a bare
denial of the existence of the second agreement. The appellant
did
not file an affidavit by the officials who would have been
responsible for signing the agreement in 2007 and would have direct
knowledge of whether the agreement was signed. The appellant
contended that even if there was a signed agreement, it would still
be invalid due to the fact that it was concluded in contravention of
s 217 of the Constitution. It is not necessary to decide this
aspect
as the appellant has abandoned the constitutional validity point.
Applying the
Plascon
Evans
principle, it cannot be said that the arbitrator acted grossly
irregular by relying on an unsigned agreement. The respondent’s
version to the effect that the second agreement was probably signed
was not one which could be dismissed out of hand on the papers.
What
is more convincing is that the appellant complied with all the
obligations in terms of the second agreement and at no stage
did the
appellant accuse the respondent of not complying with its obligations
until the respondent demanded payment of the balance
of the contract
price. There is no merit on this point.
The
arbitrator exceeded his powers by awarding interest
[16]
The respondent claimed the sum of R2 911 676,64 plus interest
with effect from 11 March 2013. The appellant contended
that interest
cannot be calculated with effect from 11 March 2013 as there was no
letter of demand from the respondent. It is not
correct that there
was no letter of demand. On 16 August 2012 the respondent addressed a
letter of demand to the appellant. On
11 March 2013 a further letter
of demand was sent to the appellant. In my view, these are proper
letters demanding payment, failing
which legal proceedings were to
follow. The fact that the appellant does not recognise these letters
as demanding payment is irrelevant.
The facts speak for themselves.
The respondent even provided its banking details in the letter of
demand dated 11 March 2013, and
mentioned words to the effect that if
the money is not deposited, summons will be issued against the
appellant.
The
arbitrator failed to apply his mind
[17]
It is significant to note that the appellant was given more than
ample opportunity to cure its default. It failed to make use
of the
opportunities. The
appellant
was in default and left the arbitration proceedings on its own
volition. The appellant’s statement of defence would
have
clarified its position and highlighted any specific aspects which
required the arbitrator’s particular attention. The
arbitrator
specifically mentioned in his award that ‘[h]aving considered
the evidence [which was undisputed] and having heard
counsel …
I make the following award’. Whether the arbitrator came to an
incorrect conclusion is irrelevant in review
applications. It would
appear that the appellant conflates appeals and reviews thus blurring
the difference. A review of an arbitrator’s
award does not deal
with the merits, but the manner in which a decision was reached. It
does not concern whether the decision was
right or wrong. An appeal,
on the other hand, amounts to a re-hearing of the matter and the
appeal tribunal is restricted to the
record of the proceedings before
it, unless the statute provide otherwise. (See
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) para 85 where this court held that an
arbitrator ‘has the right to be wrong’.) Therefore this
ground is misconceived
as a ground to have the impugned award
reviewed and set aside.
Contravention
of Clause 23.6 of the Second agreement – failure to supply
written reasons
[18]
It is incorrect to characterise the arbitrator’s conduct as a
failure to give written reasons upon which the award was
based and
also to conclude that the failure constituted misconduct and a gross
irregularity. The fact of the matter is that the
arbitrator did
provide written reason upon which the award was based; although the
written reasons were provided outside the time
period agreed to by
the parties during the pre-arbitration meeting. Clause 13.1 of the
pre-arbitration meeting reads as follows:
’
13.1
After the conclusion of the arbitration proceedings, the arbitrator
will finalise his award, with reasons, within two months
after having
heard closing arguments’.
The
award itself, without written reasons was handed down on 31 March
2014. There is no evidence as to the date on which the written
reasons were issued, save for uncontested correspondence sent to the
parties on 10 June 2014 advising them that the arbitrator
has fallen
ill and on 13 June 2014 wherein the parties were assured that the
arbitrator was recovering well and that the parties
‘will
definitely receive a copy of the reasoned award by Thursday 19 June
2014, close of business .…’ It is
undisputed that the
written reasons were given after the agreed date. The arbitrator
apologised for the delay but ascribed the
delay as having been
occasioned by persistent ill health. This is not a case where the
arbitrator failed completely to furnish
written reasons, it is a case
where reasons for the delay were communicated to the parties. The
delay spanned over a period of
about three months which cannot be
described as inordinate to constitute misconduct, let alone a gross
irregularity.
[19]
Section 33 of the Act provides as follows:
‘
(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’.
The
provisions of s 33(1)
(c)
give
this court a discretion to exercise, judicially, to set the award
aside if there has been a gross irregularity. It must
be noted
that there is no legal prohibition that a written award furnished
after the agreed date per se amounts to misconduct and
therefore
constitutes a gross irregularity. It is trite that each case must be
considered on its own merits. In the present case
the appellant did
not even, after the award was handed down on 31 March 2014, request a
written award from the arbitrator nor did
the appellant raise this
point as being prejudicial to its case. The appellant was at pains to
try and persuade this court that
such failure or delay to provide
written reasons amounted to a gross irregularity. However not a
single authority was proffered
by counsel.
[20]
The learned authors, D Butler and E Finsen stated the following in
Arbitration
in South Africa Law and Practice
(1993)
at 269 para 7.8: ‘Contrary to the position in several
jurisdictions, neither the
Arbitration Act nor the
common law
requires an arbitrator to give reasons for his decision. He is quite
entitled to make an award whereby the one party
shall pay the other
party a certain sum of money, without furnishing any reasons or
justification whatsoever.’ (Footnotes
omitted). (See
Schoch,
NO & others v Bhettay & others
1974
(4)
SA 860
(A) at 865 D-E). In
Mutual
Shipping Corporation v Bayshore Shipping Co (The “Montan”)
[1985]
1 Lloyd’s Rep 189 (CA) at 191 it was held (at 192, 198) ‘that
a court could still look at the reasons if circumstances
so
required.’ It is so that there is a strong case to be made for
furnishing written reasons, but the Act is silent on the
consequences
of not furnishing or delaying furnishing written reasons. A court
may, upon application order an arbitrator to furnish
a reasoned
award. The Act defines an award as including an interim award and not
a written reasoned award. There is no unanimity
in many foreign
jurisdictions on this question. This ground is also unmeritorious.
[21]
It is necessary to comment on the lackadaisical manner in which the
appellant went about litigating in this case. The appellant
is an
organ of state and uses taxpayers’ money to do its job. It
entered into two agreements worth millions of rands. Then
eight years
later it decided to challenge the constitutional validity thereof. At
the arbitration stage it neglected to file its
statement of defence
and defaulted in remedying or curing the default. Thereafter it
simply walked out of the arbitration proceedings
and then filed an
application to review the award. It appealed the decision of the
court below dismissing its application, amended
its notice of appeal
and abandoned the constitutional invalidity point. This court will be
failing in its duty not to express its
disquiet in the manner the
appellant handled the whole litigation process. It is high time that
officials of state organs be held
personally liable for unnecessarily
and or negligently incurring costs. Had this issue been pertinently
raised, this court would
not have hesitated to order the
functionaries personally to bear the costs of both the arbitration
and the litigation.
[22]
In my view the appellant failed to persuade this court that the
arbitrator committed gross irregularities. The appeal is therefore
misplaced and must fail.
[23]
The appeal is dismissed with costs.
____________________
J B Z Shongwe
Acting President of
the
Supreme Court of
Appeal
Appearances
For
the Appellant:
K Tsatsawane (with him T Mofokeng)
Instructed by:
Kunene Rampala Inc,
Pretoria
Phatsoane Henney
Attorneys, Bloemfontein
For
the Respondent: S Rorke SC
Instructed by:
Smith Tabata Inc,
Pretoria
Webbers Attorneys,
Bloemfontein