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[2018] ZASCA 23
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Palabora Copper (Pty) Ltd v Motlokwa Transport and Construction (Pty) Ltd (298/2017) [2018] ZASCA 23; [2018] 2 All SA 660 (SCA); 2018 (5) SA 462 (SCA) (22 March 2018)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 298/2017
In
the matter between:
PALABORA
COPPER (PTY) LTD

APPELLANT
and
MOTLOKWA
TRANSPORT &
CONSTRUCTION
(PTY) LTD

FIRST RESPONDENT
Neutral
citation:
Palabora Copper
(Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd
(298/2017)
[2018] ZASCA 23
(22 March
2018)
Coram:
WALLIS, DAMBUZA and VAN DER MERWE JJA and PLASKET
and SCHIPPERS AJJA
Heard
:
8 March 2018
Delivered
:
22 March 2018
Summary:
Arbitration award – application
to set aside –
s 33(1)(b)
of the
Arbitration Act 42 of
1965
– grounds for – gross irregularity –
severability of award – permissible if the bad part is clearly
severable
from good – award may then be enforceable for the
residue after severance.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Pretoria (Fabricius J sitting at first instance):
1
The appeal is upheld with costs, such costs
to include the costs consequent upon the employment of two counsel.
2
The order of the High Court is set aside
and replaced with the following order:
‘
1
The application to make the arbitration award dated 9 December
2015 an order of court
in terms of
s 31(1)
of the
Arbitration
Act 42 of 1965
is dismissed.
2    The application to
set the said award aside in terms of
s 33(1)
(b)
of the
Arbitration Act 42 of 1965
is upheld in regard to paragraph D thereof
and the award is to that extent set aside.
3
The dispute between the parties in regard
to the claim in reconvention in the arbitration is to be submitted to
a new arbitration
tribunal to be agreed between the parties and,
failing such agreement within 30 days of the date of this order, to
be determined
by this court in terms of
s 33(4)
, read with
s 12(2)
,
of the
Arbitration Act 42 of 1965
.
4
The applicant is to pay the costs of the
application and counter-application, such costs to include those
consequent upon the employment
of two counsel.’
JUDGMENT
Wallis
JA (Dambuza and Van der Merwe JJA and Plasket and Schippers AJJA
concurring)
[1]
On 23 December 2014, at the conclusion of a
tender process for the removal of waste from its mine and smelter,
the appellant, Palabora
Copper (Pty) Ltd (Palabora) addressed a
letter to the respondent, Motlokwa Transport & Construction (Pty)
Ltd (Motlokwa), headed
Notice of Contract Award and saying in the
opening sentence that:
‘
Palabora
Copper is pleased to advise you that your final tender offer for the
above tender has been successful and accepted.
We
confirm that this award is from 01 March 2015 until 31 December 2016
depending on the Smelter Plant future … All details,
terms and
conditions are contained in the contract document which will be
signed off by both parties in January 2015. ’
A
representative of Motlokwa signed the letter that day under the words
‘Award Acceptance’.
[2]
After that outwardly optimistic start
relations between the parties deteriorated. On 20 February 2015
Palabora launched proceedings
in the high court against Motlokwa,
seeking a declaratory order that no valid and binding contract had
been concluded, alternatively
declaring that any contract that had
been concluded had been duly cancelled. Motlokwa pleaded to this
claim and pursued a counterclaim
on the basis that a binding contract
had been concluded between the parties. It asked for specific
performance, alternatively damages.
The latter claim was posited on
the refusal by Palabora to permit Motlokwa to perform the contract
constituting a repudiation that
entitled Motlokwa to recover, by way
of damages, the profits it would have earned had it been permitted to
perform the contract.
[3]
When
the matter came to trial the parties agreed to refer it to
arbitration before a retired judge, Justice C J Claassen. During
the
course of the hearing he made various interim findings in a piecemeal
fashion, holding that a valid and binding contract had
been concluded
by way of the letter of 23 December 2015; that the pleaded
defences of lack of consensus between the parties
and that any
contract was invalid by virtue of
iustus
error
[1]
were unsound and fell to be dismissed; and, that the contract had not
been lawfully cancelled. These rulings appeared in his final
award as
paras A and B thereof, although they did not dispose of any relief
claimed in the arbitration. However, they formed the
basis upon which
he held in para C that Palabora’s claim fell to be dismissed.
In para D he then upheld Motlokwa’s
counterclaim. Consequently
his award on the claim and counterclaim read as follows:
‘
C
Prayers 1 and 2 of the Claimant’s claim in convention
[are] dismissed.
D
The Claimant is to pay to the Defendant:
1
The amount of R39 885 315; and
2
Costs, which costs will include the employment of two counsel and the
qualifying
fees of Mr Cameron-Ellis.’
[4]
Two
days after the award was published Motlokwa brought proceedings for
it to be made an order of court in terms s 31(1) of the
Arbitration
Act 42 of 1965 (the Act).
[2]
The application was opposed and a counter-application brought under
s 33(1)
(b)
of the Act to set the award aside. Fabricius J in the Gauteng
Division of the High Court, Pretoria upheld the application and
dismissed the counter-application. He refused leave to appeal, but
this Court granted leave on petition.
[5]
Palabora couched its attack on the award in
general terms, but it was largely confined to an attack on the award
of damages to Motlokwa.
This was the principal issue debated in
argument before us. The argument hinged around three propositions.
These were:
·
that on a proper construction of the
pleadings it was for Motlokwa to prove that it had suffered damages
arising from Palabora’s
repudiation of the contract and, as it
had led no evidence to substantiate that it had suffered damages, its
counterclaim should
have been dismissed;
·
that the arbitrator wrongly placed the onus
on Palabora to show that Motlokwa would not have suffered any
damages; and
·
that the arbitrator misconstrued an
agreement on quantum reached by the parties during the arbitration,
by ignoring the qualifications
embodied in the agreement that
required Motlokwa to prove certain assumptions central to its claim
to have suffered damages and
concluding that there had been no
meeting of the parties’ minds in regard to the terms of the
quantum agreement.
[6]
The other argument advanced by Palabora was
that there was a gross irregularity in the manner in which the
arbitrator dealt with
its claim. The contention was that, in making
his first ruling that there was a valid and binding contract, the
arbitrator pre-empted
his decision on Palabora’s later argument
that there was a lack of consensus between the parties as to the
subject matter
of the agreement. The earlier conclusion precluded him
from properly considering that argument and this constituted a gross
irregularity
vitiating his conclusions on and dismissal of Palabora’s
claim. As the counterclaim was dependent on the finding that there

was a binding contract this irregularity was said to have also
fatally infected the arbitrator’s findings on the counterclaim.
The
law
[7]
The legal principles that govern the
circumstances in which a court can set aside an arbitration award are
reasonably clear, although
their application in any particular
instance may be problematic. The statutory provision invoked in the
present case is s 33(1)(
b
)
of the Act, which reads as follows:
‘
(1)  Where
—
(
a
)
…
(
b
)
an arbitration tribunal has committed any gross irregularity in the
conduct
of the arbitration proceedings or has exceeded its powers; or
(
c
)
…
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.’
[8]
This
provision was the subject of detailed consideration by this Court in
Telcordia
.
[3]
It suffices to say that where an arbitrator for some reason
misconceives the nature of the enquiry in the arbitration proceedings

with the result that a party is denied a fair hearing or a fair trial
of the issues that constitutes a gross irregularity.
[4]
The party alleging the gross irregularity must establish it. Where an
arbitrator engages in the correct enquiry, but errs either
on the
facts or the law, that is not an irregularity and is not a basis for
setting aside an award. If parties choose arbitration,
courts
endeavour to uphold their choice and do not lightly disturb it.
[5]
The attack on the award must be measured against these standards.
The pleadings
[9]
In its particulars of
claim Palabora alleged that it called for tenders in terms of a
request for proposals and received a tender
from Motlokwa that it
accepted in terms of the Notice of Contract Award.  This was
admitted. Palabora went on to plead that
a draft contract prepared
for signature by Motlokwa was not signed as provided for in the
Notice of Contract Award and that this
failure meant that there was
no binding agreement. It furthermore alleged that there was no
consensus between it and Motlokwa,
because the request for proposals
did not include a provision for the contractor’s monthly
overheads, whereas Motlokwa’s
tender did. It pleaded that this
was a counter-offer not accepted by Palabora and therefore there was
‘no, or insufficient,
consensus between the parties regarding
their true intention.’
[10]
Apart from these
allegations Palabora alleged that any contract that came into
existence had been induced by mutual mistake, alternatively,
iustus
error, or
had been lawfully cancelled. Nothing more needs to be said about
these defences, as they did not feature in the argument
before this
court.
[11]
Together with its
plea Motlokwa delivered a counterclaim. It relied on the acceptance
of its tender, as embodied in the Notice of
Contract Award, as
bringing into existence a contract between itself and Palabora.
Initially it sought an order for specific performance,
but by the
time of the arbitration its counterclaim was for damages in lieu of
performance on the basis of a breach of the contract.
This claim was
pleaded in the following terms:
‘
30.
But for the plaintiff’s breach of the agreement, the defendant
would have performed in terms
of the agreement.
31.
In the circumstances, the defendant has suffered damages in the
amount of R39 855 315.00,
alternatively R33 007 175.00,
which amount represents:
31.1
the revenue that the defendant would have earned;
less
31.2
the costs and expenses the defendant would have incurred, for the
duration of the agreement.’
[12]
Palabora denied these
allegations ‘as if specifically traversed’ and required
Motlokwa to prove them.  But it did
not rest there. Its plea
went on as follows:
‘
7.3
In amplification of the aforementioned denial, the Plaintiff avers
that:
7.3.1
Almar Investments (Pty) Limited (…) being the Defendant’s
joint venture partner that had the
necessary experience and skill to
perform the work under the contract withdrew from any involvement
with the
Defendant
on 20 January 2015, resulting in the Defendant lacking the
necessary experience and skill to perform the said work;
7.3.2
The Defendant would not have been able to raise the necessary finance
of approximately R60 million in order
to finance the acquisition of
the equipment and vehicles necessary to perform the said work;
7.3.3
Even if the Defendant had been able to obtain the said financing, it
would still not have been able to obtain
the equipment and vehicles
necessary to perform the said work timeously, in order to commence
performing the work on 1 March
2015;
7.3.4
As a result of the Defendant not being able to perform the work, not
having the necessary equipment and
vehicles and/or not being ready
and able to commence performing the work on 1 March 2015, the
Plaintiff would have cancelled the
agreement with the Defendant, as
it would, in the circumstances, have been able to do. The basis of
the cancellation would inter
alia be that the Defendant was unable to
conduct its normal line of business in the ordinary and regular
manner, as provided for
in clause 7.3(a) of the General Conditions.
7.4
Further to paragraph 7.3 above, and even in the event that the
Defendant was able to, and
did, commence performing the work on the
said commencement date (which is denied):
7.4.1
taking into account the amounts which the Plaintiff would be required
to pay to the Defendant, the Plaintiff would
immediately have tested
the market to ensure that just and fair prices were paid;
7.4.2
In such event, the Defendant, if given the opportunity to quote,
would have been unsuccessful in its bid,
and the agreement would have
been terminated …’
[13]
It is clear from these pleadings that the
primary issue before the arbitrator was whether a contract had been
concluded between
the parties. This involved two questions. The first
was whether the letter containing the Notice of Contract Award gave
rise to
a contract or whether it was merely a preliminary indication
of matters and of no force or effect, unless the parties duly
executed
the written agreement containing the ‘details, terms
and conditions’. The second was what was described in the
arbitration
and before us as consensus. It is apparent that this was
being used in the special sense described above, namely that because
the
tender was formulated differently from the request for proposals
and had been accepted without Palabora realising that it involved

payment not only for the work but also for Motlokwa’s
overheads, there was no true consensus between the parties. Unless

there was a valid contract that Palabora could not avoid on these or
any of the other pleaded grounds Motlokwa’s counterclaim
was
stillborn.
[14]
As to the counterclaim, if Motlokwa
surmounted the hurdle of showing the existence of a valid and binding
contract, there was no
dispute that Palabora refused to permit it to
perform in terms of the contract and had indeed purported to cancel
it. That left
in issue the allegation made by Motlokwa and denied,
with amplifying reasons, by Palabora that Motlokwa would have
performed in
terms of the contract. It also left in issue the
allegation that it suffered damages being the difference between the
amount it
would have earned had it been permitted to perform and the
expenses that it would have incurred in effecting that performance.
[15]
The allegations by Palabora in
amplification of its denial that Motlokwa had suffered damages were
essential as a matter of pleading
to alert Motlokwa to the case it
would have to meet at the trial. That case was that it would not have
been able to perform, and
would not in fact have performed the
contract and would therefore not have suffered any damages as a
result of a breach by Palabora.
Motlokwa recognised in para 30
of its counterclaim, that its ability to have performed the contract
was the basis for its
contention that it had suffered a loss of
profits as alleged. These allegations did not create a separate
defence to the counterclaim,
nor did they shift the onus of proving
that it would have suffered damages and the quantum thereof from
Motlokwa to Palabora. The
latter contended that the failure to
recognise this lay at the heart of what went awry in the arbitration.
The
arbitration
[16]
Early on the first day of the arbitration
the arbitrator asked whether, in the light of the pleaded issues, it
would not be convenient
to separate the determination of Palabora’s
claims from the counterclaim. The suggestion was welcomed by
Palabora’s
counsel and greeted more cautiously by Motlokwa’s
counsel. By the third morning, both sides had agreed that this was a
sensible
approach. The arbitrator then made the following order in
terms of their agreement:
‘…
the
agreement that has been arrived at is that there will be a separation
of the claim by the claimant from the defendant’s
counterclaim.
So the defendant’s counterclaim will stand over for another
day. In the present proceedings we will only be
concerned with the
declarator in the claimant’s claim to establish whether or not
an agreement has been concluded or not.’
Both
counsel confirmed the agreement. Thereafter Palabora led some further
evidence and closed its case. Motlokwa closed its case
on the claim
without calling any evidence. The hearing then adjourned for the
preparation of heads of argument.
[17]
The
argument that followed initially revolved around the question whether
an enforceable contract was concluded in consequence of
the Notice of
Contract Award. Palabora contended that a contract would only have
come into existence after further negotiations
and the conclusion of
a more complete written agreement containing all the details, terms
and conditions of the contract.
[6]
[18]
On conclusion of argument on this point the
arbitrator said that he understood that he was required to make a
ruling, with reasons
to follow later and that this would dispose of
the question whether there was a contract between the parties.
Counsel for Palabora
interposed and said this was incorrect, as there
remained the alternative argument that there was no consensus between
the parties.
He said that the arbitrator was only required to rule on
whether an additional written contract was required for an agreement
to
come into existence and then to hear argument on the question of
consensus. The arbitrator’s response was clear: ‘I
say
no, it was not required’ and asked if that was enough for a
ruling, to which counsel for Palabora responded ‘Yes’.
[19]
Confusion was introduced by the
intervention of counsel for Motlokwa. He indicated that in his view
any ruling would dispose finally
of the question whether a contract
had been concluded including the issue of consensus. When the
arbitrator then suggested that
his ruling should say that a contract
came into existence as a result of the Notice of Contract Award,
counsel for Palabora objected
that this would exclude his reliance on
both the defence of lack of consensus and that of
iustus
error.
[20]
After lengthy discussion between the
arbitrator and counsel a compromise ruling was drafted that was
intended to dispose of the
issue already argued, while leaving it
open to Palabora to pursue its contentions based on lack of consensus
and
iustus
error.
It read as follows:
‘
It
is ruled that the contract between the parties did come into being
upon the acceptance on 29 December 2014 by the claimant of
the
defendant’s tender dated 10 December 2014. Subject to the
claimant’s right to attack the validity of that contract
on the
basis of its further defences.’
This
ruling was eventually incorporated in para A of the arbitrator’s
award, but of itself it plainly does not constitute
an award on any
issue submitted to arbitration.
[21]
Both parties having expressed satisfaction
with this ruling argument then commenced, without any further
evidence, on the issues
of lack of consensus, mutual mistake,
iustus
error and cancellation. When the
argument ended the arbitrator indicated that he rejected all of
Palabora’s contentions on
these issues. Again there was some
debate with counsel. This ended with the arbitrator making two
rulings that he called B and
C respectively and that feature in the
final award in those terms. The first was that the ‘further
defences of lack of consensus,
mutual mistake and/or
iustus
error’ failed. The second was
that prayers 1 and 2 of Palabora’s claim in convention were
dismissed. Like para A of
the final award, para B was not itself an
award, but a finding leading to the award in para C that the claim in
convention be dismissed.
For present purposes it can be disregarded.
[22]
At this stage the parties agreed that the
question of costs in regard to the claim would be dealt with at the
end of the proceedings.
The parties then turned to the counterclaim
and the quantum of Motlokwa’s damages. I will return to this in
due course, but
for now it is necessary to address Palabora’s
argument that the initial part of the arbitration was affected by a
gross irregularity
that requires the award to be set aside in its
entirety.
Pre-judgment
of issue
[23]
I have little difficulty with the notion
that an arbitrator who makes a preliminary ruling on one issue and
thereby, without hearing
argument on a second issue, effectively
forecloses any argument on that issue, or pre-determines the answer
to it, may be guilty
of a gross irregularity. The position there
seems to me no different from that which would arise if the
arbitrator were to refuse
entirely to hear argument from one of the
parties on a point. The issue is whether that occurred in this case
as a result of the
events described above.
[24]
Palabora argues that it became impossible
for the arbitrator to consider the argument of absence of consensus
properly once he made
his initial ruling that the issue of the Notice
of Contract Award and its acceptance resulted in the conclusion of a
contract.
Accordingly, it submitted that the outcome of the argument
on that point was foreordained.
[25]
I do not agree. The parties agreed to
separate Palabora’s claim from Motlokwa’s counterclaim.
They then argued one point
namely whether the issue and acceptance of
the Notice of Contract Award was insufficient on its own to give rise
to a contract
and whether the signature, in January 2015, of the
contemplated written agreement containing the ‘details, terms
and conditions’
was a pre-requisite to the conclusion of a
binding contract. The arbitrator rejected this contention. When doing
so the arbitrator
was well aware that this was all that had been
argued before him. That much is apparent from the exchange between
him and Palabora’s
counsel quoted above in para 18.
[26]
After Motlokwa’s counsel’s
intervention described earlier, Palabora’s counsel made it
clear that he still wished
to advance its contention that there was a
lack of consensus. From the discussion that followed it is plain that
the arbitrator’s
aim and intention was to formulate a ruling on
the point already argued, that left it open to Palabora to argue the
remaining points
that had not been considered. The ruling eventually
made may have been clumsily worded, and may have led counsel for
Motlokwa to
argue that the further arguments were inconsistent with
it, but nothing could be plainer than that the arbitrator did not
prevent
argument on the point of lack of consensus. Indeed the
further pages of the record show that it was vigorously argued.
[27]
I appreciate that Palabora’s
contention is subtler than merely saying that it was prevented from
advancing the argument. Instead
counsel contended that the impact of
the initial ruling that a contract came into being upon the
acceptance on 29 December 2014
by the claimant of the defendant’s
tender was inevitably that the argument of lack of consensus would
not be sustained. I
do not agree. The arbitrator made a preliminary
ruling. It is apparent from the circumstances in which he did so that
all he intended
to do was to reject the argument that the execution
of a further written agreement was necessary in order to bring a
binding contract
into existence. He deliberately qualified his ruling
to enable Palabora to advance the lack of consensus argument. It is
true that
he seemed sceptical of its merits, or whether it was more
properly part of the argument on
iustus
error, but he was entitled to form
those views, so long as he was willing to entertain the argument and
consider it on its merits
as he saw them. Whether he was right or
wrong is no concern of this court.  I therefore reject this
argument on behalf of
Palabora.
The
counterclaim
[28]
Once the stage of dealing with the
counterclaim arrived the parties’ experts concluded an
agreement in regard to quantification
of Motlokwa’s claim. They
embodied the agreement in a document that was handed to the
arbitrator. The material portion read:
‘
2.
This agreement is premised upon and subject to the following
assumptions being established,
namely:
2.1
That the Defendant would have succeeded in timeously obtaining
finance for the amount of
approximately R54 million in order to
purchase the equipment necessary to perform the work, and an
additional approximately R6
million, as working capital;
alternatively
2.2
That the Defendant would have succeeded in timeously:
2.2.1
Obtaining finance for the amounts of approximately R19.4 million for
the purchase of equipment, and a further
approximately R6 million in
respect of working capital; and
2.2.2
Entering into a rental agreement for the renting of the balance of
the equipment required to the value of
approximately R34 million;
2.3
That the Defendant would have purchased,
alternatively
rented
all of the necessary equipment in time, in order to have the same
delivered to the mine on or before 1 March 2015.
3.
The Claimant intends persisting with all of its defences as set out
in its Plea
to the counter-claim.
4.
If the assumptions in paragraph 2 above are proved, and depending
upon any finding
in relation to the Claimant’s defences to the
counter-claim first being made, the parties agree to the following
quantum
:
4.1
R39 885 315 in the event of
it being proved that the equipment would have been purchased;
alternatively
4.2
R33 007 175 in the event of it being proved that the
equipment would have been
hired.’
[29]
Clauses 2 and 4 of the agreement were
relatively straightforward. Motlokwa’s calculation of its claim
was agreed between the
two experts, but their agreement was subject
to the important qualification that it applied if the assumptions in
clause 2 were
proved. In the one scenario the assumption that had to
be proved was that Motlokwa would have been able to procure the
necessary
finance and working capital to acquire the equipment to
perform the contract. In the other it had to prove that it would
obtain
the finance and working capital necessary to lease, as opposed
to purchase, the equipment. A further assumption applicable to both

scenarios was that it would have done so sufficiently expeditiously
to enable the equipment to be delivered to the mine on or before
1
March 2015 when it was supposed to commence work under the contract.
[30]
Some confusion was caused by the references
in clause 3 to Palabora persisting with ‘all its defences’
contained in
its plea to the claim in reconvention. It is true that
in that document Palabora had incorporated all the allegations
advanced
in its particulars of claim in support of the contention
that no binding contract had been concluded, or that it had been
cancelled.
Manifestly all those issues had already been disposed of
and, to the extent that at some points in the record counsel for
Palabora
appears to have thought that some of them were still alive,
he was mistaken. However he was perfectly clear that the issues that

were the subject of proof as set out in the quantum agreement were
those raised in para 7 of Palabora’s plea to the counterclaim

quoted earlier in para 12 of this judgment.
[31]
For
the reasons already explained in dealing with the pleadings the onus
of proof in regard to damages rested squarely on Motlokwa.
[7]
It was obliged on the pleadings to prove that it would have suffered
damages in consequence of the repudiation or unlawful cancellation
of
the contract and to prove the quantum of those damages. What evidence
was required and where the duty to adduce evidence lay
were separate
questions, but there could be no dispute in regard to where the onus
lay. Of course in many cases where the damages
are based upon an
alleged loss of profits there is no real issue concerning the ability
of the injured party to perform the contract
and the issue is rather
as to the quantification of its losses. But in principle it is for
the claimant to allege (as Motlokwa
did), and prove, the fact of loss
and the amount thereof. At a trial a failure to do so would have
resulted in an order of absolution
from the instance.
[8]
All of this flowed from the principle that breach of contract is not
in itself a wrong carrying an award of damages unless the
aggrieved
party has suffered patrimonial loss.
[9]
[32]
The quantum agreement did not alter this
position. If anything it made it even clearer in specifying that
proof of the assumptions
was required and that an award of damages
could only flow from such proof. All it did was narrow the scope of
the enquiry to proof
of the assumptions. If those were proved and
loss had been suffered the quantum of the damages was agreed. The
proof required related
to the manner in which Motlokwa would have
carried out the contract. The arbitrator was accordingly required to
determine whether
it would have done so and, if so, whether it would
have done so by raising the requisite finance to purchase vehicles
and equipment
or would have raised the finance to lease the vehicles
and equipment it needed.
[33]
This was perfectly straightforward. What
complicated it was the contention by Motlokwa that it was under no
obligation to prove
anything further and that the effect of the
quantum agreement was to settle both its entitlement to damages and
the quantum thereof
entitling it to an award in its favour. The
submission was made that what were called assumptions in the quantum
agreement were
‘no more than the defences raised in the plea’
and that there was nothing in the agreement that Motlokwa ‘is
called upon in law to establish in order to create a prima facie
case’. The further submissions by counsel for Motlokwa made
it
clear that he was speaking of the issues in paras 7.3 and 7.4 of the
plea to the claim in reconvention. His approach was that
the
arbitrator should exclude reliance on these because they were not a
defence sustainable in law.
[34]
These and similar submissions made on
behalf of Motlokwa were based on the assumption that the effect of
the quantum agreement was
an admission that it had suffered damages
in the amounts set out in the agreement. This was apparent from
counsel’s submissions
in a number of passages in the record.
Thus he said ‘there is no sustainable answer in law to the
quantum conceded’
and most tellingly:
‘…
as
I always understood it, if you claim loss on the basis of a breach of
contract you never have to allege, I would have done the
work. It is
not part of your
essentialia
.
It is a non-defence. … [T]here is no obligation on the party
claiming the loss to make a positive allegation or to lead
any
evidence because the only basis, the only thing you have to prove is
that there was an unlawful termination of contract.’
Counsel
appears to have overlooked that Motlokwa had alleged that it would
have performed the contract and that its claim was one
for loss of
profits, so that it was essential for his client to prove that it
would have earned those profits had it been permitted
to perform the
contract.
[35]
Instead counsel submitted that the pleas in
7.3.2 and 7.3.3 of the plea to the counterclaim were not viable pleas
in law. That prompted
the arbitrator to ask whether he was taking a
verbal exception to these paragraphs. The answer was in the
affirmative and a ruling
was sought ‘before we even consider
leading evidence’.
[36]
Following
argument the arbitrator struck out ‘the defences’ in
paras 7.3 and 7.4 of the plea. After this ruling counsel
for Palabora
tried to lead some evidence to show that the assumptions underpinning
the quantum agreement were not well founded,
only to be told by the
arbitrator that the defences he was relying on had been struck out.
When he said that it was not a defence,
but that the quantum
agreement was conditional on proof of the assumptions, he was allowed
briefly to call one of the experts.
He did so and referred him to
certain documents emanating from Standard Bank. This prompted an
objection and the arbitrator said
that he did not have to listen to
hearsay evidence.
[10]
That brought an end to the evidence of that witness and no attempt
was made to call any further evidence.
[37]
There was then a final argument on behalf
of both parties. Palabora’s counsel contended strongly that as
no attempt had been
made to prove the assumptions underlying the
quantum agreement the counterclaim had to fail. In all fairness the
arbitrator recognised
that this was Palabora’s argument. In
response counsel for Motlokwa said that this was not what the quantum
agreement meant
and it ‘could never be saddled with a duty to
lead evidence in order to destroy the defences he has raised which
are not
sustainable in law’. He argued that Palabora was
labouring under a misapprehension in regard to the need to lead
evidence
on the issues of whether Motlokwa had suffered damages and
reiterated his view that it had never been necessary for him to lead

any evidence on this issue.
[38]
When it came to giving a judgment on these
issues the arbitrator held that the quantum agreement reversed the
onus of proof; that
this could not have been intended; and
accordingly that there was no meeting of the minds in regard to its
terms. These were issues
that he raised in the course of argument.
They formed no part of Motlokwa’s argument and had the radical
outcome of invalidating
the quantum agreement. He then without
further ado made an award in favour of Motlokwa of the higher amount
in the quantum agreement,
namely, R39 885 315.00. This was
presumably based on the quantum agreement in respect of which he had
just held that
there was no consensus between the parties.
[39]
In
the result, what started as a clearly pleaded case on damages, where
the basis for the claim that damages had been suffered was
clearly
challenged on specified grounds, ended up with every endeavour by
Palabora to pursue those grounds being blocked. Motlokwa
brought no
evidence to show that it could or would have fulfilled the contract,
had it been permitted to do so. Finally and without
more, it was
given an award in the higher of the two amounts set out in the
quantum agreement, without any evidence or argument
being advanced to
the arbitrator as to why this was the appropriate amount to be
awarded and without the arbitrator advancing any
reason for selecting
the one ahead of the other. As Holmes J once said in a different
context ‘What is the Court to do about
this drollery?’
[11]
[40]
Had the problem of the quantum agreement
referring to two separate amounts been considered, the arbitrator
would surely have recognised
that it was necessary at the very least
to determine whether in the performance of the contract Motlokwa
would have pursued the
course of purchasing or leasing the necessary
equipment. That in turn would have required an investigation into its
ability to
raise the finance necessary for those purposes. Counsel
endeavoured to address this difficulty by referring us to answers
given
in cross-examination by witnesses called by Palabora that
initially they believed that Motlokwa would be able to fulfil its
contractual
obligations and an answer by a bank official, sub-poenaed
duces tecum
to
produce certain bank records, that Motlokwa and the broader
organisation of which it was a part were good clients who had never

been refused banking facilities. Not only were those answers not
directed at the issue of Motlokwa’s ability to perform the

contract or the manner in which it would have done so, but they were
given in the context of Palabora’s claim, not the counterclaim,

on which no evidence at all was led.
[41]
The arbitrator’s task was not aided
by counsel for Palabora persistently describing issues raised in
amplification of its
denial that Motlokwa had suffered damages, as
defences, a theme taken up by his opponent. However, they were
clearly not defences
and time and again counsel for Palabora also
made the point that the issue on which evidence needed to be led was
whether Motlokwa
had suffered damages, something that could only have
occurred if it had been able to perform the contract.
[42]
It is plain from the above description of
events in the course of the arbitration on the counterclaim that
Palabora did not have
a fair trial of the issues it sought to raise
in respect of the counterclaim. The arbitrator apparently thought
that because quantum
had been agreed this meant that it was agreed
that Motlokwa had suffered damages. This disregarded the pleadings
and the clear
assumptions in the quantum agreement. It is unnecessary
to consider where the evidential burden, as opposed to the onus of
proof,
lay in regard to this. The effect of the arbitrator’s
rulings, especially his striking out of paras 7.3 and 7.4 of the plea

to the counterclaim, was to prevent an exploration of these issues by
relieving Motlokwa of any obligation, however light evidentially,
to
prove that it would have performed the contract and had suffered loss
as a result of being prevented from doing so. In the result,
the
arbitrator did not direct his mind to the central issue in the
counterclaim, namely, whether Motlokwa proved that it had suffered

loss and, in consequence, damages. All this was done in good faith,
but the cumulative effect was to deprive Palabora of a fair
trial of
these issues. It follows that para D of the award cannot stand.
What
should be set aside?
[43]
Having reached that conclusion the question arises as to the relief
to be granted to Palabora. Obviously the appeal must be
upheld, but
what portion of the arbitrator’s award must be set aside? This
raises the legal issue of the proper interpretation
of the court’s
powers under s 33(1)
(b)
of
the Act. Must a finding of a gross irregularity in the proceedings
necessarily result in the entire award being set aside, or
is there
scope for the court to preserve and enforce the ‘good’
part of the award and set aside the ‘bad’?
[44]
The arguments for Palabora were presented
under four heads, of which one related to the dismissal of its claim
and three dealt exclusively
with the counterclaim. The first argument
failed and the arguments in regard to the counterclaim succeed.
Counsel for Motlokwa
submitted that only para D of the award dealing
with the counterclaim and costs should be set aside and the remainder
should not
be affected. For their part counsel for Palabora submitted
that the entire award fell to be set aside in consequence of the
success
of the arguments in relation to the counterclaim.
[45]
To my
surprise there is virtually no direct authority on whether it is
permissible in circumstances such as those in this case for
the court
to set aside only a part of the award and not the whole. Section
33(1)
(b)
provides that if arbitrators commit a gross irregularity or exceed
their powers the court may make an order setting the award aside,
but
it says nothing about the situation where the irregularity or excess
of powers affects only a discrete part of the award. Our
attention
was not drawn to any cases where this had occurred in relation to a
gross irregularity. My own researches reveal that
one textbook
[12]
says that in an application under s 33(1) of the Act the court
may set aside the award in whole or in part. The problem is
that the
cases cited by the author for that proposition do not support it.
[13]
In some of the early decisions courts were willing to make a part of
an award an order of court, provided the parties consented
thereto.
In others the court was dealing with statutory arbitrations in
relation to labour matters, where an award became what
was formerly
known as subordinate delegated legislation, to which the principles
of severance could be applied.
[14]
All of this is unhelpful.
[46]
Other
standard texts on arbitration in South Africa do not address the
issue in the context of a finding of gross irregularity in
the
arbitration.
[15]
They do, however, accept that where arbitrators exceed their powers
and the exercise of excessive powers does not infect the entire

award, the good may be severed from the bad and enforced.
[16]
Bearing in mind that s 33(1)
(b)
of
the Act deals with both exceeding powers and gross irregularity as
grounds for setting aside an award, there seems no reason
why the
same principle should not apply where only part of an award is
infected by a gross irregularity.
[47]
The
current English
Arbitration Act
[17
]
addresses the problem directly by saying that where a court may set
aside an award it may do so ‘in whole or in part’.

However, under its predecessor
[18]
the wording was the same as the current South African statute,
namely, that the court may ‘set aside the award’. In
the
last edition of
Russell
on Arbitration
[19]
before the new statute the law in regard to this provision was
summarised as follows:
‘
An
award bad in part may be good for the rest. If, notwithstanding that
some portion of the award is clearly void, the remaining
part
contains a final and certain determination of every question
submitted, the valid portion may well be maintainable as the
award,
the void part being rejected …
The
bad portion, however, must be clearly separable in its nature in
order that the award may be good for the residue. When it is
so
divisible, the faulty direction will alone be set aside or treated as
null. … If the objectionable provisions in the
award are
inseparable from the rest, or not so clearly separable that it can be
seen that the part of the award attempted to be
supported is not at
all affected by the faulty portion, the award will be altogether
avoided.’
[48]
That approach seems to me to reflect a
logical and sensible construction of the statute. There does not
appear to be any sound reason
why an arbitration, that has been
properly conducted on certain issues and has properly determined
those issues, should be set
aside in its entirety, because of an
irregularity in relation to a wholly separate issue. Of course the
court will need to be satisfied
that the latter issue is wholly
separate from the others, but, subject to that, this approach is
consistent with the language of
s 33(1)
(b)
and gives effect as far as possible to
the parties’ agreement to have their dispute determined by the
arbitrator. It is also
an approach that is consistent with those
cases in which our courts have set aside portions of an award as
being beyond the powers
of an arbitrator, but made the balance of the
award an order of court. In my view it is correct and should be
applied in this case.
[49]
Palabora’s claim and Motlokwa’s
counterclaim were separate and distinct, although for convenience
they were dealt with
in one set of proceedings. The failure of the
first was a pre-requisite for success in the second, but that would
have been the
case if they had been pursued in separate proceedings,
where the decision on the existence of the contract would have been
res judicata
in
later proceedings. Of more importance is that the issues in respect
of the existence of a contract between Palabora and Motlokwa,
and
whether such contract was invalid because of a lack of consensus
between the parties as to its terms or by virtue of the other
pleaded
defences, were separated from the counterclaim. The effect of that
separation was the same as if the existence of the contract
had been
determined in entirely separate proceedings from the determination of
the counterclaim. As the gross irregularity occurred
in relation to
the latter alone, it is the award in respect of the latter alone that
falls to be set aside.
Order
[50]
The appeal must be upheld with costs,
including the costs of two counsel. The order of the high court
dismissing Palabora’s
application to set aside the arbitration
award must be set aside and replaced with an order setting aside para
D of the award.
The order making the whole award an order of court in
terms of s 31(1) of the Act must also be set aside.
[51]
This raises the question whether an
order should have been made making para C an order of court. As
pointed out above paras A and
B were not awards on any issue
submitted to the arbitrator for determination. The problem is that
making para C of the award an
order of court would serve no useful
purpose. The purpose of such an order is to make the processes of the
high court in regard
to the execution of judgments available to the
successful party in the arbitration. But there is nothing on which to
execute in
relation to an order dismissing prayers 1 and 2 of
Palabora’s claim. They are simply dismissed and the principles
of
res judicata
prevent them from being revived. No purpose was served by making that
portion of the award an order of court. That order was sought
in
order to be able to execute on the monetary award on the
counterclaim.
[52]
Turning
to costs Motlokwa has succeeded in maintaining the award dismissing
Palabora’s claim, albeit without an order in terms
of s 31(1).
However, the more substantial part of the award was the award of
damages on the counterclaim. That must be, and
should in the High
Court have been, set aside.  Palabora has therefore enjoyed
substantial success and is entitled to its
costs in the High Court.
Lastly, Palabora asked us to refer the dispute, insofar as the award
was set aside, to a new arbitrator
in terms of s 33(4) of the
Act. We are obliged to accede to that request.
[20]
[53]
Accordingly I make the following order:
1
The appeal is upheld with costs, such costs
to include the costs consequent upon the employment of two counsel.
2
The order of the High Court is set aside
and replaced with the following order:
‘
1  The
application to make the arbitration award dated 9 December 2015
an order of court in terms of
s 31(1)
of the
Arbitration Act 42
of 1965
is dismissed.
2    The application to
set the said award aside in terms of
s 33(1)
(b)
of the
Arbitration Act 42 of 1965
is upheld in regard to paragraph D thereof
and the award is to that extent set aside.
3
The dispute between the parties in regard
to the claim in reconvention in the arbitration is to be submitted to
a new arbitration
tribunal to be agreed between the parties and,
failing such agreement within 30 days of the date of this order, to
be determined
by this court in terms of
s 33(4)
, read with
s 12(2)
,
of the
Arbitration Act 42 of 1965
.
4
The applicant is to pay the costs of the
application and counter-application, such costs to include those
consequent upon the employment
of two counsel.’
_________________________
M J D WALLIS
JUDGE OF APPEAL
Appearances
For
appellant: J P V McNally SC (with him K H Shozi)
Instructed
by: Webber Wentzel, Sandton
Symington
& De Kok, Bloemfontein
For
respondent:
Instructed
by: J Wasserman SC (with him A J Daniels)
Markram
Inc, Attorneys, Nieuw Muckleneuk
Webbers
Attorneys, Bloemfontein.
[1]
The one
light note in an otherwise serious case is that the typist
responsible for the preparation of the record, perhaps with

unconscious irony, consistently typed this as ‘useless error’.
[2]
Both the
notice of motion and the judgment in the high court say that the
application was made under
s 33(1)
but that is incorrect.
[3]
Telcordia
Technologies Inc v Telkom SA Ltd
[2006]
ZASCA 112; 2007 (3) SA 266 (SCA).
[4]
Ellis v
Morgan; Ellis v Dessai
1909
TS 576
at 581;
Goldfields
Investment Ltd v City Council of Johannesburg
1938
TPD 551
at 560-561.
[5]
Clark v
African Guarantee & Indemnity Co Ltd
1915
CPD 68
at 77;
Telcordia
supra
paras
4 and 5;
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews and Another
[2009]
ZACC 6
;
2009 (4) SA 529
(CC) para 219.
[6]
CGEE
Alstholm
Equipments et Enterprises Electriques South African Division v GKN
Sankey (Pty) Ltd
1987
(1) SA 81
(A) at 92.
[7]
In the
context of the present case such loss of profits as Motlokwa proved
would not be special damages, but those flowing naturally
from the
breach of contract.
Victoria
Falls & Transvaal Power Co Ltd v Consolidated Langlaagte Mines
Ltd
1915
AD 1
at 22.
[8]
Aucamp v
Morton
1949
(3) SA 611 (A).
[9]
LAWSA
Vol
7 (2 ed, 2005), sv ‘Damages’ para 47 and the cases cited
in fn 2.
[10]
The
proposition was incorrect if that evidence had probative value and
its admission would not have led to any unfairness to Motlokwa.
Dexgroup
(Pty) Ltd v Trsutco Group International (Pty) Ltd and Others
[2013]
ZASCA 120
;
2013 (6) SA 520
(SCA) paras 17-22.
[11]
Dreyer v
Naidoo
1958
(2) SA 628
(N) at 629A – the case of the ambidextrous sheriff.
[12]
Jacobs
The
Law of Arbitration in South Africa
(1977)
para 177, p 145: ‘It is competent for a court to sustain an
award in part and set it aside in part.’
[13]
With the
possible exception of
Maladry
v De Koning
1905
TS 528.
[14]
S v
Prefabricated Housing Corporation (Pty) Ltd
1974
(1) SA 535
(A) at 540A-E.
[15]
LAWSA
Vol
2, 3
rd
ed (2015) paras 140 and 142. Butler and Finsen
Arbitration
in South Africa Law and Practice
(1993) do not mention the matter.
[16]
LAWSA
ibid
para
143 and the cases cited in fns 11 to 13. Peter Ramsden
The
Law of Arbitration
(2009)
p 200 says that where one part of an award is void the valid
portion may be enforced, citing
Cone
Textiles (Pvt) Ltd v Ayres and Another
1980
(4) SA 728
(ZA), a case where a part of the award related to a
matter not falling within the submission to arbitration. After
severance
the remainder of the award was enforced.
[17]
Arbitration
Act 1996 (1996 c 23) s 68(3)(b).
[18]
Arbitration
Act
1950 (14 Geo 6
, c 27) s 23(2).
[19]
Anthony
Walton QC and Mary Vitoria
Russell
on Arbitration
20
th
ed (1982) 430-431.
[20]
Hos+Med
Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing &
Consulting (Pty) Ltd and Others
[2007] ZASCA 163
;
2008
(2) SA 608
(SCA).