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[2002] ZASCA 14
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Total Support Management (Pty) Ltd and Another v Diversified Health Systems (South Africa) (Pty) Ltd and Another (457/2000) [2002] ZASCA 14; 2002 (4) SA 661 (SCA) (25 March 2002)
REPORTABLE
CASE
NO: 457/2000
IN
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
In
the matter between:
TOTAL
SUPPORT MANAGEMENT (PTY) LTD 1
ST
APPELLANT
G
W SLABBERT 2
ND
APPELLANT
and
DIVERSIFIED
HEALTH SYSTEMS (SOUTH
AFRICA)
(PTY) LTD 1
ST
RESPONDENT
P E B
REYNOLDS 2
ND
RESPONDENT
CORAM: SMALBERGER
ADP, MARAIS, CAMERON, BRAND JJA and LEWIS AJA
DATE
OF HEARING: 25 FEBRUARY 2002
DELIVERY
DATE: 25 MARCH 2002
Summary:
Arbitration - alleged misconduct by arbitrator - principles
applicable - s 33(1) of the Constitution has no application
- no
misconduct established - costs.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
SMALBERGER
ADP
SMALBERGER ADP:
Introduction
[1]
On 25
October 1995 a written agreement ("the agreement") was
concluded between Interpharm Integrated Pharmaceutical Benefit
Management (Pty) Ltd ("Interpharm") and the first
appellant, Mr G W Slabbert ("Slabbert"), as sellers, and
the
first respondent, Diversified Health Systems (South Africa) (Pty)
Ltd ("DHS"), as purchaser, for the sale of the
pharmaceutical
benefit management business ("the business")
owned and conducted jointly by Interpharm and Slabbert. Subsequently
Interpharm
ceded any claims it might have against DHS arising out of
the agreement to the first appellant, Total Support Management (Pty)
Ltd
("TSM"). (I shall, where appropriate, refer to TSM and
Slabbert jointly as "the appellants".)
[2]
Clause
30 of the agreement provided for the resolution of any disputes
arising out of or in connection with the agreement by an
arbitrator
agreed upon by the parties or, failing consensus, by an arbitrator
nominated by the President of the Law Society of the
Transvaal.
Clause 30.12.3 specifically provided that "unless the terms of
submission provide otherwise, the arbitrator's determination
shall be
final and not subject to appeal. . . .".
[3]
A
dispute arose concerning TSM's liability for payment of portion of
the purchase price and interest, a matter dealt with in more
detail
below. The dispute was duly referred to arbitration. As the parties
could not agree upon an arbitrator the second respondent,
Mr P E B
Reynolds, a senior attorney of some forty years' standing, was
nominated as such.
[4]
The
arbitration was duly conducted before the second respondent in
September 1999. The parties had earlier filed a claim and
counterclaim
respectively. Five witnesses testified for the
appellants; DHS closed its case without leading any evidence. The
second respondent
delivered his written judgment and award on 21
October 1999. Both the appellants and DHS were unsuccessful in their
respective claims.
The dismissal of the claims was accompanied by an
adverse order as to costs in each instance.
[5]
On 1
December 1999 the appellants launched an application in the Transvaal
Provincial Division of the High Court in terms of sec
33(1) of the
Arbitration Act 42 of 1965 ("the Act") to set aside the
award made by the second respondent. The matter in
due course came
before Ngoepe JP. The learned judge dismissed the application with
costs, but granted the appellants leave to appeal
to this Court.
The issues in
the arbitration and their determination
[6]
In terms
of clause 9 of the agreement the purchase price of the business and
assets (as defined) was R49 439 500,00 payable,
as provided
for in clause 10, as follows:
"10.1 The sum
of R2 439 500,00 (Two Million Four Hundred and Thirty Nine Thousand
Five Hundred Rand) shall be paid by the PURCHASER
in cash on the
CLOSING DATE [as defined].
10.2 The GUARANTEED
AMOUNT [the sum of R47 000 000] shall be paid to the SELLER in the
following manner:
10.2.1 The
PURCHASER shall pay to the SELLER:
10.2.1.1 The sum of
R13 500 000,00 (Thirteen Million Five Hundred Thousand Rand) upon the
happening of the earlier of the following
events:
10.2.1.1.1 The
target of 500 000 (Five Hundred Thousand) individual lives under
claims clearing agreements being achieved by IDS;
or
10.2.1.1.2 The
expiry of a period of 12 (Twelve) months after the CLOSING DATE.
10.2.1.2 A further
sum of R13 500 000,00 (Thirteen Million Five Hundred Thousand Rand)
once the consolidated net earnings before
taxes, exclusive of any
royalties or administrative fees, of the TSM GROUP for a period of 12
(Twelve) consecutive months has reached
R6 500 000,00 (Six Million
Five Hundred Thousand Rand);
provided that
should an agreement between IDS on the one hand and Medscheme
(Proprietary) Limited or the alliance of Affiliated
Medical
Administrators on the other be concluded upon mutually acceptable
terms and conditions for the processing by IDS of claims
for the
members of the other contracting party, the PURCHASER shall ensure
that the aggregate of the amounts referred to in clauses
10.2.1.1 and
10.2.1.2 above is paid to the SELLER on the effective date of such
agreement.
10.2.2 The PURCHASER
shall pay to the SELLER the sum of R20 000 000,00 (Twenty
Million Rand) once the volume of claims cleared
by IDS has reached an
average of 500 000 (Five Hundred Thousand) per month over a period of
3 (Three) consecutive months, provided
that such target volume is
achieved within 3 (Three) years of the CLOSING DATE, failing which
the PURCHASER shall with effect from
the third anniversary of the
CLOSING DATE have no further obligation to effect payment of the said
sum to the SELLER."
In clause 10.2.5
provision was made for the payment of interest.
[7]
It is
common cause that DHS paid to the appellants:
1) The amount of R2
439 500,00 referred to in clause 10.1;
2) The amount of
R13 500 000,00 referred to in clause 10.2.1.1 ("the first
payment") on 30 October 1996;
3) The amount of
R13 500 000 referred to in clause 10.2.1.2 ("the second
payment") on 21 January 1997.
[8]
It was
also common cause between the parties:
1. That interest as
provided for in clause 10.2.5 on the first payment, in an amount of
R1 824 238,36, was payable by DHS
to the appellants in
respect of the period 28 October 1995 to 30 October 1996, and that
the appellants were entitled to what is referred
to as
mora
interest on that amount from 31 October 1996 to date of payment;
2. That interest as
provided for in clause 10.2.5 on the second payment up to 21 January
1997 (if payable) amounted to R2 253 954,45,
on which
amount alleged
mora
interest would have been payable from 22
January 1997 to date of payment;
3. That DHS refused
to make any interest payments to the appellants;
4. That DHS denied
liability to pay the amount of R20 000 000,00 referred to
in clause 10.2.2 and interest thereon to the
appellants.
[9]
In their
Statement of Claim in the arbitration proceedings the appellants
claimed from DHS the amount of R4 078 192,81
(being the sum
of the amounts referred to in [8(1) and (2)] above) together with
"
mora
interest" ("the first claim"), and
the amount of R20 000 000,00 referred to in clause 10.2.2
("the
second claim").
[10]
In its
Plea and Counterclaim DHS, in response:
1. Admitted making
the second payment to the appellants but claimed that it was paid in
the
bona fide
and reasonable but mistaken belief that it was
due when it was not;
2. Admitted that
interest was payable on the first payment in the sum of
R1 824 238,36;
3. Claimed set-off
of the second payment against the amount of interest payable, leaving
a balance overpaid of R11 675 761,64;
4. Claimed
repayment of that amount on the basis of the
condictio indebiti
;
5. Denied liability
for any other amounts.
[11]
The
second respondent made the following award:
1. He dismissed the
appellants' first claim with costs. The underlying reasoning was:
the appellants failed to establish that any
of the pre-conditions for
liability to make the second payment had been fulfilled; accordingly
DHS was not under a legal liability
to make the second payment when
it did so on 21 January 1997; the second payment was made by mistake;
liability for such payment
was an essential prerequisite for the
interest claimed in respect of the second payment; the appellants
claim for accrued interest
on the second payment thus failed; the
interest admittedly due in respect of the first payment had to be set
off against the natural
obligation owing by the appellants to DHS as
a result of the latter having mistakenly made the second payment.
2. He dismissed the
appellants' second claim with costs. It is not necessary to dwell
on his reasons for doing so as the appellants
did not seek to attack
the award in this respect.
3. He dismissed
DHS's counterclaim with costs, on the grounds that DHS had not
established the essential requirements of a claim
under the
condictio
indebiti
and was therefore not entitled to repayment of the
balance of the second payment after deduction of the interest due by
it in respect
of the first payment. DHS has never sought to
challenge this finding.
The issues
arising from the arbitration
[12]
In
their application to review and set aside the second respondent's
award the appellants only attacked that part of the award dismissing
their first claim. The gravamen of their initial complaint, as set
out in Slabbert's founding affidavit, was that the second respondent
"made a mistake
so gross and so manifest and was so grossly careless in ignoring
facts that were common cause between the parties
and evidence that
was not disputed in cross-examination that an inference of misconduct
as envisaged by
section 33
(1) (a) of the
Arbitration Act, 1965
on
the part of second respondent can be made."
(I shall refer to
this as the first ground of review.)
[13]
The
appellants subsequently filed a supplementary founding affidavit
after their attorney had received schedules from the second
respondent detailing his attendances and fees, and those of his
assistant, Mr D Milo ("Milo"), relating to the arbitration.
I shall deal more fully below with how Milo came to be involved in
the matter. The gist of the appellants' allegations in their
supplementary and later replying affidavits was that the final
judgment and award handed down in the arbitration represented the
findings and award not of the second respondent, but of Milo. The
appellants accordingly submitted that the second respondent's
conduct
relating to the role played by Milo amounted to misconduct on his
part, alternatively, to a gross irregularity in the conduct
of the
proceedings as envisaged by
sec 33(1)(a)
and (b) respectively of the
Act (the second ground of review).
The applicable
legal principles
[14]
Section
33(1) of the Act provides:
"(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."
[15]
In
Dickenson & Brown v Fisher's Executors
1915 AD 166
this
Court considered the provisions of sec 18 of Natal Act 24 of 1898
which provided for the setting aside of an arbitral award
where,
inter alia
, "an arbitrator or umpire has misconducted
himself". In the course of his judgment (concurred in by all
the other members
of the court) Solomon JA stated (at 176) that there
could not be misconduct, if the word was used in its ordinary sense,
"unless
there has been some wrongful or improper conduct on the
part of the person whose behaviour is in question" and rejected
the
notion "that a
bona fide
mistake either of law or of
fact made by an arbitrator can be characterised as misconduct. . . ."
He went on to hold (also
at 176) that "in ordinary
circumstances where an arbitrator has given fair consideration to the
matter which has been submitted
to him for decision, I think it would
be impossible to hold that he had been guilty of misconduct merely
because he had made a
bona fide
mistake either of law or of
fact".
[16]
Earlier
in his judgment (at 174) Solomon JA referred to the case of
Dutch
Reformed Church v Town Council of Cape Town
15 SC 14
where De
Villiers CJ had occasion to examine the Roman-Dutch law of awards,
and where it was pointed out that under that system a
practice had
been introduced called "reductie" which was to all intents
and purposes an appeal against the award. De Villiers
CJ remarked
that no case could be found in the Cape Colony in which the process
of "reductie" had been resorted to and
added that
"[c]ertainly
since the appointment of English and Scotch Judges in 1828 the
principle of the finality of awards became firmly
established in our
Courts."
Solomon JA went on
to observe
"That was so
before any legislation had been introduced on the subject, and since
that time the question is placed beyond doubt."
In the light of the
authorities referred to below this remains the position in our law
today.
[17]
In
Donner v Ehrlich
1928 WLD 159
Solomon J considered the effect
of sec 16(2) of Ordinance 24 of 1904 (T), the wording of which was
virtually identical to that of
sec 18 of Natal Act 24 of 1898. He
stated (at 160):
"As I read
Dickenson and Brown v Fisher's Executors
(1915, A.D. p. 166),
the misconduct which entitles a Court to set aside the award of an
arbitrator must amount to dishonesty. I
think that is the true
reading of the judgment."
He went on to hold
(at 161) that even a gross mistake, unless it establishes
mala
fides
or partiality, would be insufficient to warrant
interference.
[18]
Later
cases, some of which are referred to in
Hyperchemicals
International (Pty) Ltd and Another v Maybaker Agrichem (Pty) Ltd and
Another
1992(1) SA 89 (W) ("the
Hyperchemicals
case")
at 97-8 followed the same line. That was the position which existed
in 1965 when the Act came into operation. In the
Hyperchemical
'
s
case Preiss J came to the conclusion that the Legislature intended
the words of the Act to bear the meaning which had been judicially
determined in similarly worded pre - 1965 statutes (at 98 E - F).
This led him to reject the argument that "misconduct"
as
envisaged in s 33(1)(a) of the Act embraced the notion of what was
referred to as "legal misconduct" - conduct calling
for the
application of a less stringent test for interference than laid down
in the authorities referred to.
[19]
Preiss
J also rejected an alternative argument that the pre - 1965 decisions
represented an old approach which had been implicitly
overruled by a
new extended criterion which resulted in complaints falling short of
imputations of dishonesty being brought within
the ambit of s
33(1)(a) of the Act. This argument was based in the main upon the
analysis of certain sections of the Act undertaken
by Jansen JA in
Theron en Andere v Ring van Wellington van die NG Sendingkerk in
Suid-Afrika en Andere
1976(2) SA 1 (A) at 22 (which included a
reference to the decision in
Dutch Reformed Church v Town Council
of Cape Town
,
supra
). Preiss J concluded (at 99 H - I):
"I certainly do
not read into this analysis any indication that the field of review
has been extended or altered beyond the field
so positively laid down
in
Dickenson & Brown v Fisher's Executors
(
supra
)
and its successors. It says no more than that some remnants of
judicial interference derived from the common law persist in this
statute."
[20]
In
Amalgamated Clothing and Textile Workers Union of South Africa v
Veldspun (Pty) Ltd
1994(1) SA 162 (A) ("the
Veldspun
case") this Court (at 169 C - E) confirmed the legal position as
laid down in
Dickenson & Brown v Fisher's Executors
and
Donner v Ehrlich
. See also
Bester v Easigas (Pty) Ltd and
Another
1993(1) SA 30 (C) and
Kolber and Another v Sourcecom
Solutions (Pty) Ltd and Others
2001(2) SA 1097 (C) at 1106 J to
1108 D.
[21]
Because
the submission to arbitration did not provide otherwise, the parties
were precluded by the provisions of clause 30.12.3
of the agreement
from appealing against the decision of the second respondent. The
appellants can challenge the second respondent's
award only by
invoking the statutory review provisions of sec 33(1)(a) and (b) of
the Act. Proof that the second respondent misconducted
himself in
relation to his duties or committed a gross irregularity in the
conduct of the arbitration is a prerequisite for setting
aside the
award. The onus rests upon the appellants in this regard. As
appears from the authorities to which I have referred, the
basis on
which an award will be set aside on the grounds of misconduct is a
very narrow one. A gross or manifest mistake is not
per se
misconduct. At best it provides evidence of misconduct (
Dickenson
& Brown v Fisher's Executors
,
supra
, at 176) which,
taken alone or in conjunction with other considerations, will
ultimately have to be sufficiently compelling to justify
an inference
(as the most likely inference) of what has variously been described
as "wrongful and improper conduct" (
Dickenson &
Brown v Fisher's Executors
,
supra
, at 176), "dishonesty"
and "
mala fides
or partiality" (
Donner v Ehrlich
,
supra
, at 160 - 1) and "moral turpitude" (
Kolber
and Another v Sourcecom Solutions (Pty) Ltd and Others
,
supra
,
at 1108 A).
The
Constitution
[22]
The
above principles are well established and firmly entrenched in our
law. They govern the present appeal unless there are provisions
in
the Bill of Rights in the Constitution of the Republic of South
Africa, 1996 ("the Constitution") that require their
re-assessment and re-evaluation. That follows from the fact that all
statutes must be interpreted through the prism of the Bill
of Rights
(
Investigating Directorate: Serious Economic Offences and Others
v Hyundai Motor Distributors (Pty) Ltd and Others:
in re
Hyundai Motor Distributors (Pty) Ltd and Others v Smit NO and Others
2001(1) SA 545 (CC) at 558 E - F (para [21]). We raised with counsel
the question of what, if any, the implications of sec 33(1)
of the
Constitution were in relation to the appeal. The answer, for reasons
that follow, is that it has no relevance.
[23]
Section
33(1) of the Constitution provides:
"Everyone has
the right to administrative action that is lawful, reasonable and
procedurally fair."
It is only
administrative action which is subject to the administrative justice
right in sec 33(1). Generally speaking administrative
action is
conduct of an administrative nature performed by a functionary in the
exercise of a public power or the performance of
a public function.
Compare in this regard the definition of "administrative action"
in
sec 1
of the
Promotion of Administrative Justice Act 3 of 2000
.
The focus of the enquiry as to whether conduct is "administrative
action" is not on the position which the functionary
occupies,
but on the nature of the power he or she is exercising. "What
matters is not so much the functionary as the function.
The question
is whether the task itself is administrative or not" (
President
of the Republic of South Africa and Others v South African Rugby
Football Union and Others
2000(1) SA 1 (CC) at 67 B (para [141]).
[24]
Arbitration does not fall within the purview of "administrative
action". It arises through the exercise of private rather
than
public powers. This follows from arbitration's distinctive
attributes, with particular emphasis on the following. First,
arbitration
proceeds from an agreement between parties who consent to
a process by which a decision is taken by the arbitrator that is
binding
on the parties. Second, the arbitration agreement provides
for a process by which the substantive rights of the parties to the
arbitration
are determined. Third, the arbitrator is chosen, either
by the parties, or by a method to which they have consented. Fourth,
arbitration
is a process by which the rights of the parties are
determined in an impartial manner in respect of a dispute between
parties which
is formulated at the time that the arbitrator is
appointed. See
Mustill and Boyd, Commercial Arbitration
, 2
nd
Ed (1989) at 41.
[25]
The
hallmark of arbitration is that it is an adjudication, flowing from
the consent of the parties to the arbitration agreement,
who define
the powers of adjudication, and are equally free to modify or
withdraw that power at any time by way of further agreement.
This is
reflected in sec 3(1) of the Act. As arbitration is a form of
private adjudication the function of an arbitrator is not
administrative but judicial in nature. This accords with the
conclusion reached by Mpati J in
Patcor Quarries CC v Issroff and
Others
1998(4) SA 1069 (SECLD) at 1082 G. Decisions made in the
exercise of judicial functions do not amount to administrative action
(cf
Nel v Le Roux NO and Others
1996(3) SA 562 (CC) at 576 C
(para [24]), and compare also the exclusionary provision to be found
in (b) (ee) of the definition of
"administrative action" in
sec 1
of the
Promotion of Administrative Justice Act). It
follows in
my view that a consensual arbitration is not a species of
administrative action and sec 33(1) of the Constitution has
no
application to a matter such as the present.
[26]
The
position may be different in the case of statutorily imposed
arbitrations (cf
Carephone (Pty) Ltd v Marcus NO and Others
1999(3) SA 304 (LAC)). In the light of the administrative
justice provisions of sec 33(1) of the Constitution the decision in
the
Veldspun
case may merit reconsideration in the context of
compulsory as opposed to consensual arbitrations. The principles
laid down in that
case still hold good in the latter type of matter.
[27]
The
further question that arises is whether the fairness requirements of
sec 34 of the Constitution apply to consensual or private
arbitrations. While at first blush it may seem that they do, closer
analysis may lead to a different conclusion. The section provides:
"Everyone has
the right to have any dispute that can be resolved by the application
of law decided in a fair public hearing before
a court or, where
appropriate, another independent and impartial tribunal or forum."
It is a moot point
whether the words "another independent and impartial tribunal or
forum" in their contextual setting apply
to private proceedings
before an arbitrator or whether they must be restricted to
statutorily established adjudicatory institutions.
The word "fair"
qualifies "public hearing" and the phrase "fair public
hearing" relates not only to
proceedings before a court but also
before "another independent and impartial tribunal or forum".
In a private arbitration
the parties may by agreement exclude any
form of public hearing - the need for anonymity or secrecy may well
underlie the decision
to resort to arbitration. The proper
interpretation of sec 34 may also involve the vexed question whether
there may be a waiver
of a constitutional right.
[28]
The
ambit and application of sec 34 was not fully argued before us and
its proper interpretation must be left open. It may well
not be of
application. Even if the fairness requirement of sec 34 applies to
private arbitrations there is nothing which precludes
the parties
themselves from defining what is fair. In my view the fairness
requirement is satisfied where parties who resort to
arbitration
agree to forego a right of appeal and accept that the well-known and
well-established principles governing arbitration
will apply.
Consequently, viewing the Act through the prism of the Bill of Rights
does not in my view justify any departure from
those principles.
The first
ground of review
[29]
The
appellants rely upon the following main considerations to justify an
inference of misconduct on the part of the second respondent:
1. He ignored the
fact that the onus to prove set-off, and what this entailed, rested
on DHS.
2. He held that the
second payment had been made by mistake without any evidence or facts
to support such a finding.
3. He found,
contrary to the tenor of cross-examination by the appellants'
counsel, and contrary to what was submitted in argument,
that neither
the appellants nor DHS relied on the first condition stipulated for
in clause 10.2.1.2 of the agreement.
4. He ignored the
fact that there is a presumption against payment by a person of money
not owing, and that this created a
prima facie
case that the
second payment was due and payable when it was made.
5. Certain factual
and credibility findings made by him were not justified.
[30]
In
terms of clause 10.2.1.2 of the agreement DHS was liable to make the
second payment on fulfillment of any one of three conditions
- (1)
the attainment by the TSM group of certain specified target earnings,
(2) the conclusion of an agreement between IDS (Interpharm
Data
Systems (Pty) Ltd) and Medscheme (Pty) Ltd, or (3) the conclusion of
an agreement between IDS and the alliance of Affiliated
Medical
Administrators ("AMA"), in both instances (2) and (3) upon
mutually acceptable terms and conditions for the processing
of claims
by IDS. It is clear from the evidence of Slabbert that the
appellants claimed the second R13.5 million from DHS because
they
believed that condition (3) had been fulfilled; and it was on the
strength of this claim that DHS made the second payment.
The
appellants' claim for interest on this amount was predicated on the
second payment having been due and payable. Interest being
ancillary
to a principal debt, without a valid debt that is enforceable a party
cannot be held liable for interest (
Commissioner for Inland
Revenue v First National Industrial Bank Limited
1990(3) SA 641
(A) at 652 H - J). The appellants set out to prove that condition
(3) had been fulfilled, but the second respondent
held, after a
comprehensive review of the relevant evidence, that they had failed
to do so. Consequently they were not entitled
to any interest on the
second payment.
[31]
That
left the question whether DHS was entitled to set off the interest
admittedly due by it in respect of the first payment against
the
second payment, which it claimed to have made by mistake. In his
judgment the second respondent stated that "he was prepared
to
find that the second payment of R13.5 million was made by the
defendant [DHS] in the mistaken belief that it was due". DHS
not having called any witnesses in this regard, there was no evidence
to justify such a finding. In any event, the onus was on DHS
to
prove that the second payment was not due and payable and, if it
succeeded in so doing, that it mistakenly believed that it was.
This
involved proof, in the first instance, that none of the three
pre-conditions for payment had been fulfilled. Failing that
set-off
could not operate.
[32]
At no
stage of the hearing did the appellants concede that condition (1)
(the attainment of the specified target earnings) had not
been
fulfilled. It was therefore incumbent on DHS to prove this. It is
common cause that in their heads of argument, which were
read out to
the second respondent, the appellants specifically made the point
that DHS had failed to prove that the specified target
earnings had
not been achieved. The second respondent therefore erred in holding
that "it is common cause that neither the
plaintiffs
[appellants] nor the defendant [DHS] rely on the first condition
stipulated for in clause 10.2.1.2 of the agreement, namely
whether
the target earnings had been reached. . . ." Had he not erred
in this regard the second respondent would presumably
have concluded
that DHS failed to establish that it was entitled to set off the
interest it admittedly owed the appellants in respect
of the first
payment against the second payment, for want of proof that the latter
was due and payable.
[33]
The
second respondent's error was a cardinal one with potentially
unfortunate financial implications for the appellants. It is
an
error which is perhaps more readily discernible with hindsight. It
is common cause that no evidence was led with regard to the
fulfillment or otherwise of condition 1. All the evidence was
concentrated on the fulfillment of condition 3. Whether or not the
target earnings had been reached would have been a matter largely
within the knowledge of the appellants. One would have expected
them
to have relied on condition 1 if there was a case to be made out for
its fulfillment. These considerations together with no
more than a
relatively fleeting reference to condition 1 in the appellants' heads
of argument may have induced the mistaken belief
on the part of the
second respondent that when all was said and done the non-fulfillment
of condition 1 was never really in issue.
The second respondent
concerned himself only with condition 3. His finding that,
irrespective of whom the onus was on, he was satisfied
that no
agreement had been concluded between IDS and AMA would have justified
the conclusion he came to on set-off if only condition
3 had been in
issue. I do not wish to be thought to be making excuses for second
respondent's error. I mention these factors because,
at the end of
the day, I do not believe that the second respondent's error can be
described as gross.
[34]
I do
not propose to consider the remaining complaints in detail. For
their contention that there is a presumption against payment
by a
person of money not owing, and that this created a
prima
facie
case that the second payment was due and payable when it was made,
the appellants relied upon the decision in
Recsey v Reiche
1927 AD 554
at 556. Even if there is a legal presumption to that
effect, and it applies in a matter such as the present, all of which
is open
to doubt, it would be of no real significance, first, because
it would have been rebutted by the positive finding by the second
respondent
that condition 3 had not been fulfilled and, second, in
the light of my conclusion that set-off was not established because
DHS failed
to discharge the onus resting on it. The second
respondent's finding that condition 3 had not been fulfilled was
based on his assessment
of the relevant evidence and the credibility
of the witnesses who testified. I am not convinced that the second
respondent erred
in any respect in arriving at such finding. Even if
he did, it would make no difference to the ultimate conclusion I have
came to
on an overall conspectus of the matter.
[35]
The
question arises whether the appellants have succeeded in making out a
case of misconduct, as envisaged by sec 33(1)(a) of the
Act, against
the second respondent - given that he erred in regard to set-off and
even accepting that he may have erred in other
respects. Mr
Delport
,
for the appellants, conceded that if the principles laid down in
Dickenson & Brown v Fisher's Executors
,
supra
, and
later decisions applied, as I have held to be the case, then an error
of fact or law, or both, even gross error, would not
per se
justify the setting aside of the second respondent's award.
Accepting that he would have to go further than that, he contended
that
the most probable inference to be drawn from the second
respondent's collective mistakes was that he was guilty of deliberate
partiality
or conscious bias in favour of DHS, a clear imputation of
impropriety and
mala fides
, amounting to dishonesty, on the
part of the second respondent. This despite the fact (1) that no
allegations were made in the founding
affidavit to that effect (as
one would have expected) and the second respondent was not afforded
an opportunity to deal with them
(as he should have been); (2) that
DHS's counterclaim, which was substantially in excess of the
appellants' claims for interest,
was dismissed by the second
respondent; and (3) that no other considerations indicative of bias
or
mala fides
on his part were relied upon. In the
circumstances the inference contended for lacks conviction and
probability.
[36]
Misconduct in the required sense will in any event not lightly or
readily be inferred on the part of an arbitrator who is a
professional
man of considerable experience in his field with a
reputation to uphold, solely on the strength of errors made in his
judgment, especially
where, as in the present instance, such errors
could never be described as gross. In my view it is, as a matter of
inference, more
likely that any errors made by the second respondent
were
bona fide
mistakes made by him in the course of a
difficult adjudication. In the result there is no room for a finding
of misconduct on his
part. It follows that the first ground of
review cannot succeed.
The second
ground of review
[37]
This
ground focuses on the extent of Milo's involvement in the arbitration
and his participation in the preparation of the judgment
and award.
The crux of the appellants' argument is that the judgment was in fact
that of Milo, having been prepared by him without
material input from
the second respondent, and that in abdicating his responsibilities in
this regard the second respondent misconducted
himself or was guilty
of a gross irregularity. (As to the meaning of an irregularity in
this context see
Ellis v Morgan
;
Ellis v Dessai
1909 TS
576
at 581.) For this allegation the appellants rely primarily, if
not solely, on inferences they seek to draw from details appearing
in
the schedules of fees delivered by the second respondent on behalf of
himself and Milo after the conclusion of the arbitration.
A related
argument is that the functions entrusted to Milo by the second
respondent went beyond those expressly or impliedly agreed
upon
between the parties and that this constituted a gross irregularity.
[38]
At the
pre-arbitration conference it was agreed that the second respondent
would have an assistant working with him throughout the
arbitration,
and that the assistant's fee would be included within the second
respondent's fee. On 4 May 1999 the second respondent
wrote a letter
to the attorneys for the parties in which he stated,
inter alia
,
that "upon reflection I consider that there should be a charge
for my assistant's time in view of the apparent complexity of
this
matter". He suggested that his assistant be paid R700 a day for
the arbitration and R300 per hour "for ancillary
related work
outside the arbitration proceedings". This was agreed to.
During the course of the arbitration the parties further
agreed to
increase the assistant's remuneration to a flat rate of R300 per
hour, including the arbitration proceedings.
[39]
No
agreement was reached as to the precise nature and scope of the
services to be rendered by the assistant (Milo). The appellants
accept that he would have been required to do research on behalf of
the second respondent. For the rest they claim their understanding
to have been that Milo would do the equivalent of the work they
allege is normally done by the registrar of a judge of the High
Court,
i e attendances at court, general secretarial work and related
matters. They claim that at no time did it enter their minds "that
the second respondent would discuss the merits of the disputes
between the parties with his assistant or would require [as they
allege]
the assistant to write the judgment and award for him. . .".
[40]
It is
common cause that the services eventually rendered by Milo included
(1) assisting with the arrangements for the pre-arbitration
meeting;
(2) being involved in correspondence and discussions with the
parties' attorneys; (3) taking down detailed notes during
the
arbitration; (4) participating in discussions regarding the merits of
the dispute with the second respondent; (5) doing research;
(6)
preparing the first draft of the award; and (7) subsequently
effecting changes to the initial draft. What is in issue is whether
he acted beyond the functions agreed upon by the parties, expressly
or impliedly, and whether his conduct amounted to a usurpation
of the
second respondent's duties.
[41]
When
selecting an arbitrator the parties to the arbitration agree to
someone in whom, by dint of his (or her) experience and ability,
they
can repose the necessary confidence and trust to determine their
dispute. What they seek is a judgment from the person chosen.
An
arbitrator is not entitled to delegate this function. He alone must
perform the duties he has undertaken and with which he has
been
entrusted, unless the parties agree otherwise. Because of the
essentially personal nature of his appointment he should be
circumspect
about utilising the services of an assistant. Making use
of an assistant is not
per se
objectionable
.
Where the
parties agree to an arbitrator doing so, care should be taken to
reach consensus on what precise functions the assistant
may perform,
to obviate any later dispute in this regard. Failing agreement, an
assistant should not be allowed to perform tasks
that may encroach
on what would be regarded as the normal functions of an arbitrator.
In no circumstances may the assistant be allowed
to usurp the
decision-making function of the arbitrator or act in a manner
subversive of his independence. Ultimately the question
to be asked,
and answered, is whether the arbitrator exercised his own judgment in
deciding the issues. This will depend upon the
facts of each
particular case.
[42]
There
is no justification for the appellants' purported belief that Milo
would only play a formal or secretarial role in the arbitration.
The
reference in the letter of 4 May 1999 to the "apparent
complexity of this matter" coupled with the reasonably
substantial
fees it was suggested should be paid to the assistant,
inter alia
, "for ancillary related work outside the
arbitration proceedings" clearly signalled the second
respondent's intention to
involve Milo to a greater extent than that.
If, as the appellants have conceded, Milo was to undertake research,
he would have had
to be sufficiently acquainted with the issues and
those aspects on which the second respondent required the benefit of
research.
He would have needed to understand what the second
respondent wanted done for his consideration in that regard. To
render the research
effective discussion of the merits with the
second respondent would have been not only unavoidable but also
desirable to provide
the necessary guidance. The results of the
research and discussion could reasonably and logically have led to
the preparation by
Milo of a document constituting a draft award for
the second respondent's consideration. There could be no breach of
the second
respondent's duty as an arbitrator if he availed himself
of assistance expressly or impliedly agreed upon.
[43]
Despite
their protestations to the contrary, it must have been reasonably
obvious to the appellants, having regard to what was agreed
upon and
anticipated, that Milo would be closely involved in the arbitration.
There can be no objection in principle to that, provided
always, in
keeping with what has been said above, that the second respondent did
not abdicate his responsibilities in favour of Milo
and, in effect,
allow him to decide the dispute. The second respondent has made it
clear, however, that this was not the case.
He admitted that he
discussed the matter, including the merits, with Milo throughout. He
wanted him to be conversant with all aspects
of the dispute. In his
answering affidavit the second respondent further states:
"[W]e also
discussed the manner in which I would structure my award when the
time came, and I advised my assistant of my views
on the various
issues as it proceeded and, at the end of the proceedings, my views
as to the result and award I had in mind and intended.
He also gave
me the benefit of his own research and answers to my comments, and
prepared memoranda for me, which we then also discussed."
[44]
It was
Milo who, after the conclusion of the arbitration proceedings,
suggested that he should prepare a rough draft of the award
while the
second respondent was temporarily absent in Cape Town. The second
respondent agreed to this, according to him,
"subject to my
direction, following my views (of which he was fully aware as we had
discussed them), and also the manner in which
I had told him I
required the draft to be prepared. My assistant was also aware of my
views in general as to what my award would
be, as I had told him.
Accordingly, it was clear to us that the draft was subject to my
overall supervision and prior direction."
[45]
The
second respondent went on to explain that the draft presented to him
by Milo contained matters with which he did not agree or
which
required change to reflect more accurately his emphasis and views;
its structure was not what he wanted; he devoted 15 hours
to a
consideration of the draft, its re-drafting and discussing aspects of
it with Milo; he applied his mind to the relevant authorities,
memoranda prepared by Milo and the heads of argument; what was
reflected in his schedule of fees as proof-reading actually amounted
to a substantial re-drafting of the draft to reflect his own views
and conclusions. The schedule of fees bears out the second
respondent's
claim to have devoted considerable time to the draft.
[46]
No
contrary facts were advanced by the appellants. There is thus
nothing to refute what was said by the second respondent. Nor
is
there any reason why his word should not be accepted, particularly
having regard to the principles that apply in motion proceedings.
The suggestion in the court below that the matter be referred to
evidence was never strenuously pursued. Based on what appeared
in
his answering affidavit it is apparent that the award was the product
of the second respondent's own, independent view. There
is nothing
to suggest that he was influenced, consciously or unconsciously, by
Milo to an extent where the latter's view became his.
There is no
substance in the appellants' contentions to the contrary which are
based on unfounded speculation and unwarranted inferences
flowing
from the schedules of fees viewed in isolation without proper regard
to their contextual and factual setting. There is no
basis for a
finding that the appellants did not have the issues fully and fairly
determined by the second respondent himself.
[47]
In the
result the appellants have failed to establish that the second
appellant committed any irregularity, let alone a gross irregularity,
in the conduct of the arbitration proceedings. Nor, in utilising
Milo's services to the extent that he did, could there have been
any
misconduct on his part. The requirements of sec 33(1)(a) and (b) of
the Act have not been satisfied. It follows that the second
ground
of review cannot succeed either.
Costs
[48]
Two
issues arise under this head. Mr
Delport
asked that, whatever
the outcome of the appeal, a special costs order should be made in
respect of the costs attendant upon the procurement
and introduction
of numerous affidavits and annexures relating to the duties and
functions of judges' clerks or registrars elsewhere,
notably the
United States of America, in terms of a notice of motion dated 5 May
2000 filed by the respondents jointly. The affidavits
and foreign
material ultimately served no purpose in the determination of the
issues on appeal. They were introduced because of
the appellants'
objection to certain allegations made by the respondents regarding
the functions of judges' clerks or registrars
elsewhere as hearsay.
While the respondents went to unnecessary lengths in this regard
their conduct did not exceed the bounds of
reasonableness to such an
extent as to warrant a departure from the normal rule that the costs
incurred should follow the result.
[49]
Mr
Kuper
, for the second respondent, asked for a punitive order
if the appellants persisted in their allegations of personal
impropriety.
I have referred to those allegations, which impute
grave impropriety to the second appellant, in para [35]. Mr
Delport
was not prepared to forego his reliance on them even though he sought
to distance himself from any imputation of dishonesty. The
appellants' continued reliance on impropriety, however, inevitably
means that they persist in their unwarranted attack on the second
respondent's integrity. There is no justification for such a
spurious attack. It was ill-conceived and groundless. To mark our
displeasure the appellants will be ordered to pay the second
respondent's costs of the hearing before us on an attorney and client
scale.
Order
The appeal is
dismissed with costs including, in respect of both respondents, the
costs of two counsel. In addition the appellants
are ordered to pay
the second respondent's costs of the hearing on 25 February 2002 on
an attorney and client scale.
_____________________________
J W
SMALBERGER
ACTING
DEPUTY PRESIDENT
MARAIS
JA ) Concur
CAMERON
JA )
BRAND
JA )
LEWIS
AJA )