THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 286/2022
In the matter between:
CLOSE-UP MINING (PTY) LTD FIRST APPELLANT
WILLEM PIETER TENNER SECOND APPELLANT
CLOSE-UP MACHINERY AND
PLANT HIRE (PTY) LTD THIRD APPELLANT
and
THE ARBITRATOR,
JUDGE PHILLIP BORUCHOWITZ FIRST RESPONDENT
LUTZKIE GROUP OF COMPANIES
(PTY) LTD SECOND RESPONDENT
Neutral citation: Close-Up Mining (Pty) Ltd and Other s v The Arbi trator,
Judge Phillip Boruchowitz and Another (286/2022) [2023]
ZASCA 43 (31 March 2023)
Coram: VAN DER MERWE, MOCUMIE, MEYER and MATOJANE JJA
and UNTERHALTER AJA
2
Heard: 7 March 2023
Delivered: 31 March 2023
Summary: Arbitration – grounds of review – arbitrator enjoyed no
discretionary competence to decide a dis pute not contained in the pleadings –
Arbitration Foundation of Southern Africa ( AFSA) rules applicable – gross
irregularity not shown.
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ORDER
On appeal from: Gauteng Division of the High Court, Pretoria (Raulinga J,
sitting as the court of first instance):
1 The appeal is dismissed with costs, including the costs of two counsel,
where so employed.
2 The second respondent is ordered to pay the costs of volumes 4 -12 of the
record.
JUDGMENT
Unterhalter AJA (Van der Merwe, Mocumie, Meyer and Mato jane JJA
concurring):
Introduction
[1] The second respondent, Lutzkie Group of Companies (Pty) Ltd (the
Lutzkie Group), brought arbitral pro ceedings against the appellants, Close-Up
Mining (Pty) Ltd, Willem Pieter Tenner and Close -Up Machinery and Plant
Hire (Pty) Ltd, respectively (collectively, Close-Up Mining ). The arbitrator,
appointed by the parties, was the first respondent, retired Judge Phillip
Boruchowitz (the Arbitrator ). The dispute submitted to arbitration concerned
two agreements, styl ed Binding T erm Sheet 1 and 2. Having heard the matter,
the Arbitrator made an award on 18 November 2020.
[2] In the award, the Arbitrator declined to consider a defence raised by
Close-Up Mining to the effect that the Lut zkie Group had repudiated the
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agreements. The Arb itrator found that the defence had not been pleaded, and
hence fell outside his jurisdiction. Close-Up Mining considered the Arbitrator to
have fallen into error. Consequently, Close-Up Mining brought review
proceedings in the Gauteng Division of the High Court, Pretoria (the high
court), seeking to set aside the Arbitrator’s award in terms of s 33(1) of the
Arbitration Act 42 of 1965 (Arbitration Act).
[3] Its challenge was initially widely cast. In a supplementary founding
affidavit, filed before the hea ring in the high c ourt, the grounds upon which
Close-Up Mining sought to set aside the award were considerably pruned. In
essence, Close -Up Mining contended that the Arbitrator had excluded from
consideration its defence of repudiation on the basis that the d efence had not
been pleaded. The Arbitrator, said Close -Up Mining, had failed to recognise
that he enjoyed a discretion to entertain the defence , even though it was not
pleaded. The Arbitrator thereby misconceived the nature of the enquiry before
him, and his associated duties, and thus committed a gross irregularity in terms
of s 33(1) (b) of the Arbitration Act . In addition, Close -Up Mining complained
that the Arbitrator had ‘made’ Mr Tenner a party to Binding Term Sheet 1,
when he was not a party to this agreement. By so doing, claimed Close -Up
Mining, the Arbitrator had exceeded his powers and committed a gross
irregularity.
[4] The review came before Raulinga J. The Arbitrator abided the decision of
the court . The high court found that the disputes raised i n the arbitration
proceedings are those raised on the pleading s. And since the repudiation
defence had not been raised on the pleadings, the Arbitrator had correctly
decided that he lacked the jurisdiction to entertain the defence. The review was
accordingly dismissed with costs, including the costs of two counsel. With the
leave of the high court, Close-Up Mining appeals to this Court.
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Pleading and jurisdiction ground of review
[5] I turn , first, to the principal issue raised in the appeal: is an arbitrator
precluded from deciding a defence that was not pleaded?
[6] The Arbitrator considered this to be so, and consequently determined that
his competence was thus limited. The dispute referred to arbitration is framed
by the pleadings. If a defence is not pleaded, he reasoned, the Arbitrator does
not enjoy the competence to decide that matter. This reasoning, Close -Up
Mining contended, is mistaken.
[7] The matter before us proceed ed on the basis that the question to be
determined is whether a party to arbitration proce edings that has failed to plead
an issue may nevertheless seek to have the arbitrator decide this issue. It was
thus somewhat unexpected that counsel for Close -Up Mining commenced his
oral submissions with the contention that the pleadings in the arbitrati on could
be understood to have raised the defence of repudiation. We do not need to
engage this interpretative exercise. Close-Up Mining confined their challenge to
the grounds set out in their supplementary founding affidavit. There, Close -Up
Mining relie d upon the proposition that the Arbitrator had come to the
erroneous conclusion that he lacked jurisdiction to decide a matter not pleaded.
That proposition has as its starting premise that Close -Up Mining did not plead
the defence of repudiation. The cont ention that the opposite is true is at odds
with the grounds upon which Close -Up Mining formulated their case to set
aside the award. We decline to entertain a new case on appeal addressed before
us in oral argument.
[8] Proceeding then , on the basis that Clo se-Up Mining did not plead the
Lutzkie Group’s repudiation of the agreements, Close -Up Mining did however
raise the question of repudiation in its heads of argument before the Arbitrator.
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This, Close -Up Mining argued, rendered the principle in Shill v Miln er,1 of
application. There , the Appellate Division recognised that a court enjoys a
discretion to give some latitude to a litigant to raise issues at the trial that were
not explicitly pleaded, where to do so gives rise to no prejudice , and where all
the f acts have bee n placed before the trial court. Just as the Shill v Milner
discretion is enjoyed by a trial court, so too, Close -Up Mining contended, an
arbitrator is invested with the same competence. The Arbitrator however failed
to recognise this competence, and hence committed a gross irregularity.
[9] What then of the Arbitrator’s holding, affirmed by the high court, that he
enjoyed no jurisdiction to decide matters that were not pleaded? As an
invariable statement of the competence of an arbitrator, it is a proposition that
cannot stand.
[10] It is well understood that parties may agree the matters to be referred to
arbitration, and enjoy considerable autonomy in doing so. 2 It is the arbitration
agreement of the parties, taken together with acceptance by the p arties of the
conditions on which the arbitrator accepts appointment, that determine the
jurisdiction of the arbitrator as to the matters referred to arbitration.
[11] Under the principle of party autonomy, there is no reason why parties
cannot agree to confer upon an arbitrator the competence to decide matters that
have not been pleaded, under a discretionary competence, the content of which
is akin to the discretion recognised in Shill v Milner. It is important, however, to
recognise the source of such a comp etence in arbitration proceedings. It does
not derive, as with the courts, from an inherent power to protect and regulate
1 Shill v Milner 1937 AD 101 (A) at 105.
2 Lufuno Mphaphuli and Associates (Pt y) Ltd v Andrews and Another [2009] ZACC 6; 2009 (6) BCLR 527
(CC); 2009 (4) SA 529 (CC) para 219; Telcordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007
(3) SA 266 (SCA); [2007] 2 All SA 243 (SCA); 2007 (5) BCLR 503 (SCA) para 4.
7
their own process .3 It is to be found, rather, in the arbitration agreement of the
parties. If the parties agree to confer upon the ar bitrator a discretionary
competence to decide a matter that has not been pleaded, but one that crystalises
outside of the pleadings, there is no reason why the parties’ agreement should
not be honoured.
[12] It follows that there is no rule of law that an arbi trator cannot enjoy
jurisdiction to decide matters not set out in the pleadings. What competence the
arbitrator enjoys depends upon what is contained in the arbitration agreement.
This holding is an application of the principle of party autonomy. It is als o
consistent with the Arbitration Act. An arbitration agreement is defined in the
Arbitration Act to mean a written agreement providing for the reference to
arbitration of any existing dispute or any future dispute relating to a matter
specified in the agr eement. That is expansive language, and it would include a
dispute that arises in the course of arbitration proceedings that the arbitrator is
given a discretion to entertain. The only two matters that the Arbitration Act
specifically excludes from a refer ence to arbitration are these: any matrimonial
cause or any matter relating to status. 4 Plainly, like any other agreement, a
provision contrary to public policy or the Constitution would also not be
enforceable. But there is no suggestion that confining an arbitrator’s
competence to the matters pleaded is a requirement of the Constitution or of
public policy. On the contrary, our courts have recognised the value that
attaches to party autonomy in the use of arbitration to resolve disputes.5
3 Section 173 of the Constitution.
4 Section 2 of the Arbitration Act.
5 See Telcordia Technologies Inc para 4 as well as authorities cited therein.
8
[13] The holding in Hos+Med6 is entirely consistent with the position that I
have taken. In Hos+Med, this Court affirmed that the only source of an
arbitrator’s power is the arbitration agreement. The assumption by the appeal
tribunal, in that case, of a power to decide a mat ter outside of the pleadings, on
the strength of Shill v Milner, was held by this Court to be incompetent because
the submission to arbitration expressly limited the issues to the matters pleaded.
Significantly, this holding says nothing as to whether part ies can agree to
submit issues to arbitration that are not pleaded. Hos+Med simply found that
the parties did not do so.
[14] I am fortified in my opinion by the unreported decision of this Court in
Holford.7 There, the arbitration agreement accorded the arbit rator ‘such powers
as are allowed by law to a High Court of the Republic of South Africa to ensure
the just, expeditious, economical and final determination of the dispute ’. This
Court found that since a court would have been entitled to apply the principl es
set out in Shill v Milner, the arbitrator was likewise entitled to do so.
[15] In sum, the competence of an arbitrator to decide matters is determined
by the arbitration agreement. The arbitration agreement may confine the
submission to the issues that hav e been pleaded. But there is no rule of law that
requires the parties to confine their agreement in this way. The arbitration
agreement can therefore confer a competence upon an arbitrator to decide
matters upon an exercise of a discretion of the kind recognised in Shill v Milner.
All depends upon what the parties have agreed , and the proper interpretation of
their agreement.
6 Hos+Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing and Consulting (Pty) Ltd and
Others [2007] ZASCA 163; [2008] 2 All SA 132 (SCA); 2008 (2) SA 608 (SCA) paras 30-31.
7 Holford v Carleo Enterprises (Pty) Ltd and Others [2014] ZASCA 195 (SCA) para 9.
9
[16] I turn next to this question: did the arbitration agreement concluded
between the parties in fact confer a discretionary competence upon the
Arbitrator to entertain the defence of repudiation, raised by Close -Up Mining in
its heads of argument?
[17] Close-Up Mining contended that the arbitration agreement did so . The
Lutzkie Group resisted this contention.
[18] I should clarify that we are here concerned to determine what competence
the Arbitrator in fact enjoyed in terms of the arbitration agreement . We are not
called upon to decide how the Arbitrator should have exercised such
competence, if he had it to exercise.
[19] The arbitration agreement is terse. It reads as follows:
‘Save to the extent to the contrary provided for in this Term Sheet, any dispute arising out of
or in connection with this Term Sheet shall be decided by arbitration to be held in Sandton
and shall be dealt with by AFSA (the Arbitration Foundation of South Africa).’
[20] The following interpretation of the arbitration agreement was common
ground between the parties . We should understand the reference in the
arbitration agreement to the Arbitration Foundation of South Africa ( AFSA) to
be a reference to the AFSA commercial rules for domestic arbitration applicable
at the time (the AFSA rules).
[21] Close-Up Mining relied upon article 11.1 of the AFSA rules. That rule
reads as follows:
‘The arbitrator shall have the widest discretion an d powers allowed by law to ensure the just,
expeditious, economical, and final determination of all the disputes raised in the proceedings,
including the matter of costs.’
10
[22] Counsel for Close -Up Mining emphasised three features of article 11.1.
First, it conferred the widest discretion and powers allowed by law. That would
include the kind of discretion recognised in Shill v Miller . Second, article 11.1
references the disputes raised in the proceedings. It does not refer to disputes
raised in the pleadings. And the proceedings must connote the arbitration
proceedings. Disputes raised in evidence or argument are disputes raised in the
proceedings. Third, the provisions of article 11.2 that set out specific powers do
not detract from the amplitude of the genera l power conferred in article 11.1.
This is precisely what article 11.2 says. It reads as follows: ‘[w]ithout detracting
from the generality of the aforegoing [ie article 11.1], the arbitrator shall have
the following powers: . . . ’. Article 11.2’s tabulati on of specific powers,
including powers concerning pleadings, does not diminish the scope of the
power conferred in article 11.1.
[23] Close-Up Mining argued that the wide terms in which the power
conferred by article 11.1 is cast must include a discretionary competence of the
kind recognised in Shill v Milner. Whether this is so, requires us to interpret the
arbitration agreement. The arbitration agreement , the parties have agreed , must
be taken to include the AFSA rules. Like any agreement, we interpret the
agreement, and hence the AFSA rules, according to the now well understood
triad of text, context, and purpose.8
[24] True enough, article 11.1 is widely cast. It confers ‘the widest discretion
and powers allowed by law’ for a particular purpose. That is, ‘to ensure the just,
expeditious, economical, and final determination of all the disputes raised in the
proceedings, including the question of costs’. However, if a dispute is not raised
in the proceedings, then the powers conferred upon the arbitrator cannot be of
8 Capitec Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others [2021]
ZASCA 99; [2021] 3 All SA 647 (SCA); 2022 (1) SA 100 (SCA) para 25.
11
application, no matter their breadth , because the power is conferred to
determine a dispute raised in the proceedings.
[25] Thus, f or the arbitrator to exercise the wide discretion and powers
conferred by article 11.1, a dispute must have been raised in t he proceedings.
The question is then this: when can it be said that a dispute has been raised in
the proceedings? A dispute is raised in the proceedings, under the AFSA rules,
by following these rules. A party must make a written request for arbitration.
The request must, inter alia, set out a statement that an award , in accordance
with the claims, would fall within the terms of the arbitration agreement ( article
4.2.3); a statement setting out the locus standi of each party, the nature of the
dispute, all the material facts , the contentions relied upon by the claimant and
the relief claimed ( article 4.2.4). Provision is then made for the response of the
defendant. That response includes a statement as to whether the defendant
disputes the arbitration agreem ent and that it is still operative ( article 6.1.4);
whether the defendant disputes that the claim falls within the terms of the
arbitration agreement (article 6.1.4); and , if not, by delivering a statement of
defence, setting out the material facts and con tentions relied upon by the
defendant, indicating which of the claimant’s facts and contentions are disputed,
and what relief is claimed (article 6.1.5 .1). The defendant may deliver a
counter-claim (article 6.1.5.2), and the claimant , a statement of defence to the
counter-claim (article 6.4).
[26] Once a dispute has been raised on the pleadings, the arbitrator is invested
with further powers granted under article 11 in respect of the pleadings . Those
powers include the competence to permit of the amendment of any pleading
(article 11.2.13); the competence to make any ruling or give any direction he
considers necessary or advisable for the just, expeditious, economical and final
determination of all the disputes raised in the pleadings ( article 11.2.5); and an
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arbitrator may also require a party to amend its pleadings so that they are not
evasive, and to strike out averments in pleadings that are embarrassingly vague,
scandalous, vexatious or irrelevant (article 11.2.22).
[27] The AFSA rules define the term ‘pleading’ as follows. A pleading
‘includes documents comprising a Request for Arbitration, a statement of
defence, a counter -claim and a statement of defence to a counterclaim’. The
pleadings thus form steps in the proceedings by recourse to which disputes are
raised. The pleadings, however, do not exhaust the ways in which disputes may
be raised in the proceedings.
[28] Article 11.2 provides examples of other types of disputes that may be
raised in the proceedings in respect of which the arbitrator enjoys powers. The
arbitrator may decide disputes as to the admissibility of evidence, any matter of
onus, the production or preservation of property, the joinder of parties in the
arbitration proceedings, and the furnishing of security for costs.
[29] It follows that under th e AFSA rules, disputes may be raised in the
proceedings, outside of the pleadings , that the arbitrator is empowered to
decide. The pleadings form part of the proceedings, but the proceedings are
wider than the pleadings.
[30] If that is so, then should we not conclude that the arbitrator ha s a
discretionary power to permit a dispute raised outside of the pleadings to be
treated as a dispute raised in the proceedings? Three reasons incline against that
conclusion.
[31] The first is conceptual. One cannot confuse the power of the arbitrator
with the subject matter over which the arbitrator exercises this power. Article
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11.1 is a general description of the arbitrator’s powers. Over what subject matter
are those powers exercised? As I have said, t he answer is the disput es raised in
the proceedings in terms of the AFSA rules . Article 11.1 does not allow the
arbitrator the discretionary power to decide that a dispute has been raised in the
proceedings. It is for the parties to raise the dispute in terms of the AFSA rules.
If they do so, the power conferred upon the arbitrator is to decide this dispute.
[32] Second, the AFSA rules set out a detailed procedure by which the parties
raise disputes by way of pleadings. As I have recognised, the pleadings are not
the only way in whi ch the parties may raise disputes in the proceedings. But a
reading of the AFSA rules, taken as a whole, reflect s that the exchange of
pleadings is the procedure that is to be followed by the parties to define their
primary substantive disputes . Why else s pecify in such detail what the request
for arbitration and the statement of defence must contain, and the permission
that must be sought of the arbitrator to amend the pleadings. There are then
disputes that the AFSA rules permit the parties to raise as a consequence of the
primary dispute s that ha ve been pleaded. Discovery, joinder, separation of
issues: to identify a few examples. These disputes also require resolution. They
may be raised by the parties in the course of the arbitration proceedings. But ,
these disputes arise from, and are parasitic upon, the primary pleaded disputes. I
shall call these ‘dependent disputes’.
[33] Dependent disputes may be raised by the parties in the proceedings, but
their hallmark is to facilitate the determination of the prima ry dispute s. The
dependent disputes do not constitute the decision by the arbitrator of the
primary disputes that have been pleaded . The AFSA rules therefore do not
contemplate that a party to the arbitration may raise a substantive dispute
outside of the pleadings, and that such dispute may be adjudicated by the
14
arbitrator if he decides, on a discretionary basis, to do so. That would subvert a
central feature of the AFSA rules.
[34] The AFSA rules require the parties to raise their substantive disputes in
the pleadings. I f the pleadings fail to reflect the dispute adequately, then an
amendment of the pleadings must be sought, and it is for the arbitrator to decide
whether to permit the amendment. These rules are antithetical to the
discretionary Shill v Milner power that Close-Up Mining would attribute to the
Arbitrator.
[35] Third, the discretionary power for which Close-Up Mining contends is an
incident of the inherent power of the courts. While the principle of party
autonomy permits parties to include such a di scretionary power in their
arbitration agreement (as I have found), it is an unusual provision to find in an
arbitration agreement. Courts enjoy inherent power because they have a
constitutional duty to secure justice . That extends beyond the interests of
litigants. Arbitrators have no such power. It is the parties’ agreement that
determines what dispute must be decided and the powers conferred upon an
arbitrator to do so. What makes the discretionary power of the type recognised
in Shill v Milner unusual i n an arbitration agreement is that it rests upon a
paradox of party autonomy. The parties would confer the discretionary power
contended for by Close -Up Mining to permit the arbitrator to extend the reach
of his own jurisdiction, something that is ordinari ly for the parties to determine.
The parties may do so, but an arbitration agreement should ordinarily make it
plain that that is what the parties intended. The AFSA rules do no such thing.
Their cumulative provisions point to the opposite conclusion – that no such
discretionary power was conferred upon the Arbitrator.
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[36] For these reasons, I find that the AFSA rules do not confer a discretionary
power upon the Arbitrator to decide whether to adjudicate the defence of
repudiation. If the AFSA rules recognise no such power, then it is common
ground that the arbitration agreement does not do so. Consequently, the
Arbitrator made no error when he declined to entertain the defence of
repudiation. And hence , Close-Up Mining has failed to establish that the
Arbitrator committed a gross irregular ity. The appeal on this ground must
consequently fail.
The parties to the transaction ground of review
[37] The second ground of appeal relied upon by Close-Up Mining is this. The
Lutzkie Group averred in their statement of claim that Mr Tenner was a party to
Transaction 1 of Term Sheet 1. Counsel for the Lutzkie Group had, in his
opening address in the arbitration, made it plain that the purchase price in
respect of Transaction 1 was payable by the Lutzkie Group to Close-Up Mining.
This, it was contended, was a recognition by the Lutzkie Group that Mr Tenner
was not a party to Transaction 1. Yet , the Arbitrator, in his award, having
identified the merx of the sale to include Mr Tenner’s shares in Close -Up
Mining, made Mr Tenner a party to the transaction, when he was not, as counsel
for the Lutzkie Group had acknowledged. By so doing, the Arbitrator, Close-Up
Mining contended, exceeded his powers and committed a gross irregularity.
[38] The opening address of counsel for the Lutzkie Gro up amounted to no
withdrawal of the claim, so as to alter the dispute the Arbitrator was required to
decide. That dispute included a claim by the Lutzkie Group for the following
relief: that Mr Tenner be directed to do all such things and sign all such
documents as may be necessary to effect transfer of his shares in Close -Up
Mining, and of his right, interest, benefits and claims of whatsoever nature. That
relief was pursued by the Lutzkie Group in the arbitration proceedings by
16
seeking the specific performance of Transaction 1. The Arbitrator was required
to decide upon the relief sought. He did so, and granted the relief. That Close -
Up Mining considers the Arbitrator to have been in error, because Mr Tenner
was not a party to Transaction 1 , is of no account. The Arbitrator decided a live
dispute concerning the remedy of specific performance. By so doing, he
committed no gross irregularity.
[39] Accordingly, this second ground of appeal must also fail.
Costs
[40] Close-Up Mining has not prevailed in the appeal. The y must therefore
bear the costs of that outcome, including the costs of two counsel, where so
employed. That conclusion is subject to one rider. The Lutzkie Group insisted
that the record must include the transcript of the arbitration proceedings. This
was no small inclusion, amounting to nine volumes (some 1 500 pages) . That
insistence was entirely unwarranted. The first three volumes of the record were
all that was required to ventilate and decide the appeal.
[41] Where records contain unnecessary documentat ion or have not been
properly prepared in other respects, this Court has limited the costs of
preparation, perusal and copying that those responsible for preparing the record
would have otherwise been entitled to claim. 9 This is particularly so where the
record is voluminous. There is no reason why this principle should not be
extended to require that a party responsible for the unnecessary inclusion of
documents in the record should be rendered liable for the costs occasioned
thereby. Accordingly, the costs occasioned by the inclusion of the record of the
arbitration proceedings must be borne by the Lutzkie Group.
9 Siyangena Technologies (Pty) Ltd v PRASA and Others [2022] ZASCA 149; [2023] 1 All SA 74 (SCA); 2023
(2) SA 51 (SCA) para 50 and case cited therein.
17
[42] In the result, the appeal fails, and the following order is made:
1 The appeal is dismissed with costs, including the costs of two counsel,
where so employed.
2 The second respondent is ordered to pay the costs of volumes 4 -12 of the
record.
__________________________
D N UNTERHALTER
ACTING JUDGE OF APPEAL
18
Appearances
For the appellants: B H Swart SC
Instructed by: Alice Swanepoel Attorneys, Pretoria
Symington De Kok Attorneys, Bloemfontein
For the respondents: J J Brett SC
Instructed by: Gothe Attorneys, Pretoria
McIntyre Van der Post, Bloemfontein