Brief Summary

Labour Law — Review of arbitration award — Applicant sought to review and set aside an arbitration award that found the dismissal of an employee substantively unfair — Employee dismissed for misconduct related to manipulation of tender evaluation processes — Commissioner ordered reinstatement with backpay — Applicant contended that the Commissioner misconstrued charges, misdirected in evidence assessment, and exhibited bias — Court held that the arbitration award was flawed due to the Commissioner's failure to adequately summarize and assess the evidence, warranting review and setting aside of the award.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were a review application brought in the Labour Court in terms of the court’s review jurisdiction over arbitration awards issued under the auspices of the Commission for Conciliation, Mediation and Arbitration (CCMA). The applicant was Armaments Corporation of South Africa (SOC) Ltd (Armscor). The first respondent was the CCMA, the second respondent was Commissioner L Dekker N.O (the arbitrator who issued the award), the third respondent was Solidarity (the union), and the fourth respondent was Krige Gerhardus Breedt (the employee).

The procedural history was that Breedt had been dismissed by Armscor on 22 October 2014 following a nine-day internal disciplinary enquiry into alleged misconduct relating to a tender process. Solidarity thereafter referred an alleged unfair dismissal dispute to the CCMA on Breedt’s behalf. The CCMA arbitration ran over eight days between June and November 2015 and produced a lengthy record. The Commissioner issued an arbitration award (referred to in the judgment as dated 11 December 2015, and in the final order as dated 20 November 2015) in which he found the dismissal procedurally fair but substantively unfair, ordered reinstatement with backpay, and imposed a final written warning.

The general subject-matter of the dispute concerned whether Breedt, a senior employee involved in procurement, had committed misconduct by manipulating Armscor’s tender evaluation process in favour of a bidder, and whether dismissal was substantively fair. A further dimension was whether the arbitration award could withstand the reasonableness standard applicable on review.

2. Material Facts

Armscor is a public entity created in terms of the Armaments Corporation of South Africa Limited Act 51 of 2003 and listed in Schedule 2 of the Public Finance Management Act 1 of 1999. Its mandate includes servicing the Department of Defence through programme management and acquisition of goods and services for the South African National Defence Force. The employee, Breedt, had been employed from January 1989 and had 25 years’ service at dismissal. He occupied the position of Technical Manager/Armscor Programme Manager (APM) and was effectively the project manager responsible for the management and technical aspects of procurement contracts. Armscor’s internal procurement system required strict adherence to procedures designed to ensure tender processes were professional, fair, equitable, transparent, competitive, and cost-effective.

It was common cause that Armscor maintained procurement rules and practices relevant to the charges, including its Disciplinary Practice, Practice for the Selection of Contractual Sources, Contract Management Practice, Rules Applicable to Prospective Contractors, and BBBEE Practice. It was also common cause that the allegations against Breedt arose from events surrounding a tender process (referred to as Tender 392, and in parts of the judgment as “Tender 329”), in which Fire Raiders (Pty) Ltd was an offeror.

The disciplinary charges, in substance, were that Breedt (i) engaged in direct communication with Fire Raiders during the tender process about significant aspects of the process contrary to Armscor’s rules; (ii) solicited a BBBEE certificate outside the tender process, inserted it into tender documentation, and used it to compile a BBBEE scorecard; and (iii) manipulated the tender process in favour of Fire Raiders, including by obtaining reference details directly, extending the closing date without sound reason, delaying BBBEE sign-off pending a certificate, and using an inappropriately obtained certificate.

At the internal disciplinary enquiry Breedt partially pleaded guilty to charge 3(a) (directly communicating with Fire Raiders to obtain reference details while evaluation was in progress), but disputed the remainder of that charge and the other charges. The disciplinary chair found him guilty on charges 2 and 3. Following the CCMA referral, the Commissioner held that dismissal was substantively unfair, ordered reinstatement with backpay of R720 000.00, imposed a final written warning for 12 months, and dismissed Breedt’s claim for a performance bonus for 2013/2014.

On the facts relevant to the review court’s outcome, the following features were material and largely undisputed, or treated as established on the probabilities. Fire Raiders had previously held a contract (awarded in 2011) for repairs to SANDF fire and rescue vehicles, supervised by Breedt. A new tender was issued in December 2013 with a closing date initially set for 20 January 2014. Fire Raiders requested an extension, and Breedt approved an extension to 14 February 2014; it was not in dispute that he had the authority to grant the extension.

When Fire Raiders submitted its tender on 14 February 2014, the BBBEE certificate included with the tender had expired (the certificate had expired on 28 January 2014). Fire Raiders later submitted additional BBBEE documentation after the closing date. The record reflected that tender documents were perforated on receipt to prevent post-closing insertion of documents. During evaluation, Fire Raiders failed to provide complete reference contact details required under the critical criteria, and Breedt directly contacted Fire Raiders’ director, Mr Hans Muller, by telephone to obtain the missing information, which Fire Raiders then emailed. Breedt forwarded the response onward.

A further set of communications occurred between Breedt and Muller by email between 10 February 2014 and 26 March 2014. A third BBBEE certificate dated 1 April 2014 was then hand-delivered to Armscor on 2 April 2014 in an envelope marked for the attention of Breedt and another employee. Breedt forwarded this certificate for processing and sought that the matter be treated urgently. The third certificate reflected a higher black ownership percentage than the immediately prior certificate that Fire Raiders had submitted after the closing date.

In relation to the BBBEE scorecard process, evidence accepted as material by the Labour Court included that documents received outside the tender process could not permissibly be used for tender evaluation; that Breedt instructed a subordinate, Van Zyl, to compile a scorecard using the later certificate; that Van Zyl placed a “yellow sticker” note on the file to obtain advice from the BBBEE division about whether the new certificate could be used; that Van Zyl drew Breedt’s attention to the sticker; and that when the file reached the BBBEE office, the yellow sticker had disappeared. It was common cause that no written request for advice accompanied the file and that the tender file presentation created the appearance of being in order.

The Labour Court treated these facts cumulatively as bearing on whether Breedt’s conduct evidenced manipulation of the tender process in favour of Fire Raiders, particularly through direct contact, solicitation and use of a post-closing certificate, and concealment or failure to disclose irregularities to the BBBEE office.

3. Legal Issues

The central legal question was whether the Commissioner’s award, finding dismissal substantively unfair and ordering reinstatement with backpay (and a final written warning), was reviewable and should be set aside because it was not a decision that a reasonable arbitrator could reach on the evidence and issues before him.

This question primarily concerned the application of law to fact under the review standard, rather than a pure question of law. The Labour Court had to determine whether the Commissioner committed reviewable irregularities (including misconstruing the enquiry, failing to have regard to material evidence, and making material factual misdirections), and whether those defects had a distorting effect on the outcome such that the award failed the reasonableness threshold associated with the Sidumo test.

A further issue was remedial: if the award were reviewable, whether the matter should be remitted to the CCMA for rehearing or whether the Labour Court should substitute the award with its own determination on substantive fairness, given the extensive record and the nature of the defects.

4. Court’s Reasoning

The Labour Court applied the established review standard that an arbitration award is reviewable if it is not a decision that a reasonable decision-maker could reach on the material before the arbitrator. The court referred to authority emphasising that review is not an appeal, and that the assessment must consider the totality of the evidence rather than dissecting the award piecemeal. At the same time, the court reiterated that where a commissioner fails to have regard to material facts, or misconstrues the nature of the enquiry, the resulting outcome may be unreasonable and thus reviewable.

In addition to the general Sidumo reasonableness enquiry, the court relied on the analytical approach described in the Labour Appeal Court jurisprudence, requiring a review court to identify a defect contemplated by the review provisions, consider the distorting effect of the defect on the outcome, and determine whether, but for the defect, the outcome could be sustained as reasonable. The court considered that the Commissioner’s approach—particularly in respect of the BBBEE certificate and scorecard issues—demonstrated both a misdirection in the enquiry and a failure to engage with material evidence in a manner capable of supporting the outcome.

The court also commented on the manner in which the arbitration award was drafted. While acknowledging the voluminous record, the court found that the award contained extensive “cut and paste” sections from the parties’ heads of argument, without proper synthesis or clear separation between argument and findings. Although this was not treated as a standalone basis for review, it contextualised the court’s difficulty in discerning coherent reasoning and reinforced the concerns about whether the Commissioner properly evaluated the evidence.

On the merits, the court considered the allegations grouped around three key themes drawn from the charges: extension of the tender closing date, direct communication with the bidder, and the solicitation and use of BBBEE certificates and the associated scorecard process.

Regarding the extension of the closing date, the court noted that it was common cause that Breedt had the authority to approve the extension. The Commissioner had found that granting the extension could not be treated as part of a manipulation of the tender process. The Labour Court recorded that Armscor did not seriously challenge the Commissioner’s conclusion on this aspect, and it did not form a decisive basis for setting aside the award.

Regarding direct communication to obtain reference details during evaluation, the court recorded that Breedt had acknowledged wrongdoing. The Commissioner had treated a final written warning as appropriate, reasoning that there was no evidence that Breedt misled the evaluation committee because information was also outstanding from another bidder. This component was not a primary focus of Armscor’s attack in the review, but the Labour Court considered it relevant in the overall assessment of whether Breedt’s conduct showed a pattern of disregarding strict procurement rules in relation to Fire Raiders.

The principal reviewable errors, in the court’s assessment, concerned the Commissioner’s treatment of the email communications with Muller and the third BBBEE certificate. The Commissioner accepted Breedt’s explanation that the email exchanges related to obtaining a valid BBBEE certificate for purposes of closing out the earlier contract and processing outstanding payments, and not to the new tender. The Labour Court found that conclusion to be unsustainable on the timeline and probabilities. It reasoned that the earlier contract had ended on 14 February 2014 and had been financially resolved through invoices, credit notes, and payment authorisation by mid-February 2014; that a second certificate had already been submitted on 18 February 2014; and that the third certificate’s prompt transmission and the urgency attached to it aligned more plausibly with improving the tender bid than with closing the older contract.

The Labour Court emphasised that, once tender documents were received and perforated at closing, the integrity of the process required that further documents not be introduced, and that Fire Raiders’ bid should, on Armscor’s practice, have been disqualified because the certificate attached at closing had expired. Against that background, the court reasoned that soliciting and using a later certificate to populate the BBBEE scorecard constituted serious misconduct within the procurement environment, especially given Breedt’s role and obligations as APM.

The court found the Commissioner’s reasoning on the scorecard and certificate aspect to be materially defective. In particular, it held that the Commissioner had misdirected himself by relying on the 2011 Preferential Procurement Regulations and an associated implementation guide to suggest that Armscor’s internal practice should have been updated and that non-submission of a valid certificate should not lead to disqualification. The Labour Court considered that this line of reasoning was not responsive to the charges as framed, which centred on non-compliance with Armscor’s own procurement rules and practices, and on the employee’s alleged manipulation of those processes. Whether Armscor’s internal rules aligned with the Regulations was not treated as an issue that had to be decided in determining whether Breedt breached employer rules and manipulated the tender process.

The Labour Court then applied these principles to the evidence about the compilation and presentation of the scorecard. It accepted that the use of the post-closing certificate in the scorecard process was impermissible under Armscor’s rules, that Van Zyl flagged the problem through the yellow sticker note seeking advice, and that the disappearance of that sticker when Breedt delivered the file to the BBBEE office, combined with his failure to raise the certificate issue directly, supported an inference of deliberate concealment rather than innocent procedural error. The court viewed these actions as striking at the core requirements of transparency, integrity, and fairness in a public procurement context.

On the allegation of delaying the BBBEE sign-off for about six weeks pending the finalisation of an “inappropriately obtained” certificate, the Commissioner had accepted that delays could be explained by workload, administrative processes, panel availability, and outstanding information from another bidder. The Labour Court considered those explanations secondary in light of the more fundamental point that, on Armscor’s rules, Fire Raiders’ tender should have been disqualified for non-compliance at closing and that the later certificates should not have been entertained. It further considered that the evidence supported the conclusion that Breedt had held back the process and then acted with urgency when the third certificate arrived, consistent with an intention to regularise Fire Raiders’ bid rather than to apply the tender rules strictly.

The court also rejected the Commissioner’s approach that the absence of proven personal gain or motive undermined Armscor’s case. It held that the core enquiry was not whether Breedt obtained a benefit, but whether his conduct manipulated the tender evaluation process in favour of Fire Raiders. On the court’s assessment, the pattern of prohibited contact, solicitation of a more favourable certificate, use of an impermissible certificate to populate the scorecard, and failure to alert the BBBEE office to the irregularity supported the conclusion that the tender process had been manipulated.

Having found that the Commissioner failed to apply his mind to material facts and adopted irrelevant considerations that distorted the enquiry, the court held that the award could not be sustained as reasonable under the Sidumo standard. Given the extensive record and the fact that the dispute had already undergone lengthy internal and arbitration processes, the court concluded that remittal would serve no purpose and that it was appropriate to substitute the award.

5. Outcome and Relief

The Labour Court reviewed and set aside the CCMA arbitration award. It substituted the award with an order that Breedt’s dismissal was substantively fair.

No order as to costs was made. The court reasoned that it could not be said that Solidarity and Breedt lacked a basis to defend an award that was in their favour, and that considerations of law and fairness did not justify a costs order.

Cases Cited

Herholdt v Nedbank Limited 2013 (6) SA 224 (SCA).

Gold Fields Mining South Africa (Pty) Ltd (Kloof Gold Mine) v Commission for Conciliation, Mediation and Arbitration and Others 2014 (1) BLLR 15 (LAC); (2014) 35 ILJ 943 (LAC).

Sidumo and Another v Rustenburg Platinum Mines Ltd and Others 2008 (2) SA 24 (CC).

Belloord 28 CC v Commission for Conciliation, Mediation and Arbitration Johannesburg and Another (JR1499/17) [2018] ZALCJHB 112 (15 March 2018).

Head of the Department of Education v Mofokeng and Others [2015] 1 BLLR 50 (LAC); (2015) 36 ILJ 2802 (LAC).

Legislation Cited

Armaments Corporation of South Africa Limited Act 51 of 2003.

Public Finance Management Act 1 of 1999.

Preferential Procurement Policy Framework Act 5 of 2000.

Preferential Procurement Regulations, 2011 (issued under section 5 of the Preferential Procurement Policy Framework Act 5 of 2000).

Rules of Court Cited

Section 145(2) of the Labour Relations Act 66 of 1995.

Held

The Commissioner’s arbitration award finding Breedt’s dismissal substantively unfair was held to be reviewable because the Commissioner misconstrued the nature of the enquiry, relied on considerations treated as extraneous to the charges (including a focus on procurement regulations rather than Armscor’s rules that formed the basis of the misconduct charges), and failed to engage properly with material evidence showing prohibited bidder contact, solicitation and use of a post-closing BBBEE certificate, irregular compilation and presentation of the BBBEE scorecard, and conduct supporting an inference of concealment.

On the totality of the evidence, the Labour Court held that the only reasonable outcome was that Breedt’s conduct amounted to manipulation of the tender process in favour of Fire Raiders, constituting misconduct sufficiently serious to justify dismissal. The award was set aside and substituted with a finding that the dismissal was substantively fair, with no costs order.

LEGAL PRINCIPLES

The review test for CCMA arbitration awards is whether the decision is one that a reasonable decision-maker could reach on the material before the arbitrator, consistent with the reasonableness standard articulated in Sidumo and subsequent authority.

A review court must identify a reviewable defect or irregularity, assess the distorting effect of that defect on the arbitrator’s outcome, and then consider the issues and evidence as a whole to determine whether the outcome can nonetheless be sustained as reasonable. A failure to consider material facts, or misconstruing the nature of the enquiry, may render an award unreasonable if it defeats the requirement that the award be rational and reasonable.

Review is not undertaken by fragmenting the award into isolated errors and treating the matter as an appeal. However, where misdirections or ignored evidence bear materially on the outcome, and the outcome cannot stand on its reasoning, the award may be set aside.

Where the record is extensive and the dispute has been fully ventilated through internal and arbitration processes, and where remittal would serve no practical purpose, the Labour Court may substitute the award with its own determination on the merits, provided it is in a position to do so on the record.

In a procurement-related employment context, breaches of established tender procedures, prohibited bidder contact, and conduct undermining transparency and integrity in tender evaluation may be treated as serious misconduct warranting dismissal, particularly where the employee occupies a position requiring strict compliance with procurement protocols.

Armaments Corporation of South Africa (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (JR 42/2016) [2018] ZALCJHB 350 (30 October 2018)