Brief Summary

Arbitration — Review of arbitration award — Application to set aside arbitration award based on alleged misconduct and irregularities — Applicants challenged award on grounds of irrationality and procedural irregularities — Court held that review of arbitration awards is limited to grounds specified in the Arbitration Act, and that common law grounds of review are waived when parties agree to arbitration — Applicants failed to establish grounds for setting aside the award, which was deemed final and binding.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application in the Gauteng Division, Pretoria, for the review and setting aside of an arbitration award, together with related relief that included a request that the court substitute the arbitrator’s decision with its own determination.

The applicants were Cheg Trading 55 (Pty) Ltd (the first applicant) and Suk Young Kim (the second applicant, and a director of the first applicant). The first respondent was the Emfuleni Estate Home Owners Association (the HOA), and the second respondent was Cornelius Gerhardus Stolp, a practising attorney who acted as the arbitrator.

The dispute had been referred to arbitration under clause 36 of the HOA’s constitution. The arbitration ran over ten days, produced a record exceeding 1200 pages, and culminated in an award delivered on 9 December 2014. The present review application was heard in November 2015, with judgment delivered on 23 March 2016.

The general subject-matter concerned financial and maintenance obligations relating to the golf course and sport facilities within the Emfuleni Estate, specifically whether Cheg Trading was entitled to a portion of levies for maintenance and whether it was liable to pay levies on the relevant property.

2. Material Facts

It was common cause that the HOA decided to stop allocating funds to the first applicant for the maintenance of the golf course and sport facilities on the Emfuleni Estate. This decision triggered the dispute and led to a referral to arbitration in terms of the HOA constitution.

Two issues were placed before the arbitrator for determination. The first was whether the first applicant was entitled to funds, described as 20% of the levies, to maintain the golf course and sport facilities. The second was whether the first applicant was liable for payment of levies on the erf on which the golf course was located.

It was also undisputed that the arbitration was conducted pursuant to clause 36(4) of the HOA constitution, which required the arbitrator to have regard to the constitution’s principles and decide on a just and equitable basis, without necessarily applying strict rules of law, and that the arbitration was to be held under the Arbitration Act 42 of 1965, subject to the arbitration clause itself. The arbitrator was appointed by the President of the Law Society of the Northern Provinces after the parties failed to agree on an appointment within the stipulated time.

The arbitrator ultimately made an award against the first applicant, finding that the first applicant had no obligation to maintain the golf course and that the first applicant was liable to pay the levy in respect of the property on which the golf course was located.

On review, the applicants raised (among other contentions) a complaint that the proceedings were irregular because the second applicant allegedly testified in English despite an asserted inability to properly comprehend and express himself without an interpreter. The court treated this as the only potentially viable review complaint on the papers and argument.

3. Legal Issues

The central legal questions concerned whether the award could be set aside under section 33(1) of the Arbitration Act 42 of 1965, namely whether there had been misconduct by the arbitrator, a gross irregularity in the conduct of the arbitration proceedings, an excess of powers, or whether the award had been improperly obtained.

A further legal issue was whether the applicants could rely on grounds resembling an appeal on the merits—such as that the award was not rationally connected to the evidence, involved failure to consider relevant considerations, or was unreasonable—and whether such grounds were available either as common-law review grounds or otherwise, in light of the statutory scheme and the parties’ agreement to arbitration.

The dispute before the reviewing court primarily concerned questions of law about the scope of review (as opposed to appeal), and the application of those legal principles to the record to determine whether any defect in the arbitration process met the threshold of section 33(1). The court also had to make an evaluative assessment of whether any identified procedural deficiency (particularly the interpreter complaint) rose to the level of a gross irregularity causing the matter not to be “fully and fairly determined”.

4. Court’s Reasoning

The court held that the Promotion of Administrative Justice Act 3 of 2000 did not apply because the arbitration involved the exercise of private power rather than public power. The governing framework was therefore the Arbitration Act 42 of 1965, and specifically section 33, which provides limited grounds for setting aside an arbitration award.

The court emphasised that the Arbitration Act does not provide for an appeal on the merits and noted the significance of section 28 (finality of awards), together with the HOA constitution’s provision that the arbitrator’s decision would be final and binding, and enforceable as a court order. On this basis, the court stressed that review is concerned with whether the decision was arrived at in an acceptable manner, not whether it was correct. In this context, the court relied on authority stating that courts must resist revisiting the merits, because parties who choose arbitration accept finality and sacrifice the right of appeal.

Against that legal background, the court noted that the applicants had abandoned reliance on an error of law as a review ground. It referred to authority rejecting the attempt to recast legal error as an excess of powers: an arbitrator is empowered to interpret agreements and determine the applicable law, “rightly or wrongly”, and such errors fall within the mandate rather than constituting reviewable overreach.

The applicants nevertheless sought to persist with other formulations, including that the award was unreasonable, irrational, or disconnected from the evidence, and that relevant considerations had been ignored. The court held that these could not stand as independent grounds because interference by courts in private arbitration is limited to the grounds in section 33(1). It further accepted authority that, by choosing private arbitration, parties waive reliance on broader common-law review grounds unless they have expressly agreed to expand review, which they had not done. Accordingly, the court treated the applicants’ remaining complaints, at best, as potentially relevant only insofar as they could be accommodated within the statutory grounds.

The court considered that the only ground with potential substance was the contention that the second applicant’s testimony in English without an interpreter created an irregularity. The court reiterated that not every irregularity justifies setting aside an award; the irregularity must be serious enough to result in the aggrieved party not having its case “fully and fairly determined”, and a “gross irregularity” includes situations where the arbitrator misconceives the entire nature of the enquiry or misunderstands the mandate.

On the facts, the court was not persuaded that the second applicant was unable to understand and testify in English. It accepted submissions that the record reflected the second applicant had no difficulty understanding English, that he deposed to a discovery affidavit in English, took the oath and commenced evidence in English, and completed evidence-in-chief without complaining about an inability to understand or express himself. The court also attached weight to the fact that the applicants were represented by legal representatives throughout and that, if language posed a genuine problem, it should have been raised and addressed by the applicants’ representatives as dominus litis. The court distinguished between difficulty understanding the process (which the record reflected had been mentioned) and an inability to understand the language. On this basis, it concluded there was no irregularity in the proceedings arising from the absence of an interpreter.

The court then addressed other statutory grounds in principle. It explained that “misconduct” requires wrongful or improper conduct, and that a bona fide mistake of law or fact does not amount to misconduct where an arbitrator has given fair consideration to the issues. Applying that approach, the court found no conduct by the arbitrator that could be described as wrongful or improper, and reasoned that dissatisfaction with the outcome or with the arbitrator’s evaluation of evidence or law did not establish misconduct.

On the complaint that the arbitrator exceeded his powers by determining whether a developer had assigned maintenance obligations (linked to interpretation of a constitutional clause), the court applied the distinction between an erroneous exercise of a power that the arbitrator did have and an exercise of a power that the arbitrator did not have. It reasoned that interpreting the HOA constitution was necessary to resolve the referred disputes and fell within the arbitrator’s mandate; therefore, even if the applicants considered the interpretation wrong, it would not constitute an excess of powers for purposes of section 33(1).

The court also rejected the criticism that the arbitration was conducted too formally, noting that the parties’ use of lawyers would naturally tend to make proceedings more formal, and holding that this did not establish a reviewable defect. Overall, the court concluded that the arbitrator did not misconstrue the nature of the arbitration or his duties, did not exceed his powers, and committed no misconduct or gross irregularity. Because the review failed, the court found it unnecessary to address the applicants’ request for substitution or other additional relief.

In relation to costs, the first respondent sought a punitive order on the attorney-and-client scale, including the costs of senior counsel. The court applied the principle that punitive costs are exceptional and may be granted where proceedings are vexatious or where conduct warrants censure. It found that attorney-and-client costs were not justified and that the proceedings were not vexatious, but accepted that the matter justified the engagement of senior counsel.

5. Outcome and Relief

The court dismissed the application to review and set aside the arbitration award.

The court ordered the applicants to pay the first respondent’s costs, including the costs associated with the employment of senior counsel. The court refused to grant costs on the attorney-and-client scale.

Cases Cited

Telcordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 (SCA).

Benjamin v Sobac South African Building and Construction (Pty) Ltd 1989 (4) SA 940 (C).

Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews and Another [2007] ZASCA 143; 2008 (2) SA 448 (SCA).

Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43.

In re Alluvial Creek Ltd 1929 CPD 532.

Boost Sports Africa (Pty) Ltd v South African Breweries (Pty) Ltd 2015 (5) SA 38 (SCA).

Dickenson & Brown v Fisher's Executors (citation not provided in the judgment text as reproduced).

Legislation Cited

Arbitration Act 42 of 1965, section 28.

Arbitration Act 42 of 1965, section 33.

Promotion of Administrative Justice Act 3 of 2000.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the arbitration was an exercise of private power and that the award was reviewable only on the limited grounds set out in section 33(1) of the Arbitration Act 42 of 1965, not on the merits.

It held that alleged errors in the arbitrator’s interpretation of the HOA constitution, evaluation of evidence, or alleged unreasonableness could not be used to re-open the merits under the guise of review, and that by agreeing to private arbitration the parties limited court interference to the statutory grounds.

It held that the complaint relating to the second applicant’s testimony in English without an interpreter did not establish a gross irregularity, particularly given the record indications of comprehension and the applicants’ legal representation. It further held that no misconduct, excess of powers, or gross irregularity had been shown. The review application was accordingly dismissed with costs, including the costs of senior counsel, but without a punitive attorney-and-client costs order.

LEGAL PRINCIPLES

The judgment applied the principle that arbitration awards are final and not subject to appeal on the merits unless the parties have agreed otherwise, and that review proceedings must focus on the regularity and fairness of the process, not the correctness of the outcome.

It applied the principle that, in private arbitration, the grounds of review are confined to section 33(1) of the Arbitration Act 42 of 1965, and that by choosing arbitration parties waive reliance on broader common-law grounds of review, unless they have agreed to extend review or provide for an appeal mechanism.

It applied the principle that an error of law (including a wrong interpretation of a contract or misapplication of legal principles) is generally an error committed within the arbitrator’s mandate and is not, without more, reviewable as an excess of powers.

It applied the principle that a gross irregularity must be of a kind and degree that prevents the matter from being fully and fairly determined, and that not every procedural imperfection warrants setting aside an award.

It applied the principle that misconduct requires wrongful or improper conduct (as opposed to bona fide error), and that dissatisfaction with the arbitrator’s reasoning or conclusions does not establish misconduct.

It applied the principle distinguishing between an arbitrator’s erroneous exercise of a power that exists (not reviewable as excess of powers) and the exercise of a power that does not exist (potentially reviewable), and concluded that interpreting the HOA constitution fell within the arbitrator’s mandate.

It applied the principle that punitive costs are exceptional and require justification such as vexatious proceedings or conduct warranting censure; while punitive costs were refused, the costs of senior counsel were allowed where the matter justified it.

Cheg Trading (Pty) Ltd and Another v Emfuleni Estate Home Owners Association and Another (3116/2015) [2016] ZAGPPHC 212 (23 March 2016)