Provided it is wholly separable from others, the severing of the bad part from the good part of an arbitration award after making a finding of gross irregularity in terms of section 33(1)(b) of the Arbitration Act 42 of 1965 (the “Act”) was permitted in  Palabora Copper (Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd.[1]

Palabora Copper (Pty) Ltd (“Applicant”) addressed a letter to Motlokwa Transport & Construction (Pty) Ltd (“Respondent”) that it had been successful party in the bidding for a tender for the removal of waste from its mine and smelter and the Respondent accepted the award.[2] At this stage, the contract document which contained the details, terms and conditions had not been signed.[3]

Subsequent to the awarding of the tender, the Applicant launched the matter to the High Court seeking a declaratory order that no valid and binding contract had been concluded, alternately that it had been duly cancelled. The Respondent filed a counterclaim and requested for specific performance alternatively damages. However, at the day of trial the Parties agreed to refer the matter to arbitration.

In arbitration, the matter involved two questions. The first was whether the letter addressed to the Respondent gave rise to a contract or was merely a preliminary indication of matters and of no force or effect.[4] The second being whether there was consensus since the Applicant formulated the tender differently from the request for proposals and had been accepted without the Applicant realising that it included the Respondent’s overheads.[5]

The arbitrator struck out the Respondent’s defences to the Applicant’s counterclaim dealing with the consequences of Respondent’s joint venture partner having pulled out.[6] The arbitrator stated that the quantum contract reversed the onus of proof that it could not have been intended and that there were no meeting of the minds in regard to its terms.[7] The Respondent was awarded the damages in the higher amount in the quantum contract[8] with no explanation from the arbitrator.

The matter was appealed in the  SCA and it found that by striking out the defences the arbitrator prevented a fair trial of the issues in respect of the counterclaim as an enquiry into whether the Respondent would have hired or purchased the equipment and its ability to raise the necessary finances.[9] Further, assumed that the quantum agreement  meant that the Respondent suffered damages[10] disregarding the pleadings and the assumptions in the quantum agreement. As a result the Respondent was released from proving that it would have performed as per the contract and had suffered loss as a result of the repudiation.[11] As a consequence, the arbitrator did not direct his mind to the central issue in the counterclaim, namely, whether the Respondent proved that it had suffered loss and, in consequence, damages.[12]

The SCA further held that bearing in mind that section 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.[13] The SCA further, held that this approach seemed 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. However, the court will need to be satisfied that the 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.[14]

The SCA crystallised the position in South Africa law regarding whether an arbitration award can be severed in order to preserve the good and removing the bad. This can be done, provided the bad part is clearly separable from the good part.

Authors:

Nikita Lalla, Chief Executive, LNP Attorneys Inc.

Bongani Memani, Candidate Attorney, LNP Attorneys Inc.

[1] (298/2017) [2018] ZASCA 23.

[2] Para 1.

[3] Para 9.

[4] Para 13.

[5] Para 13

[6] Para 12.

[7] Para 38.

[8] Para 38.

[9] Para 40.

[10] Para 42.

[11] Para 42.

[12] Para 42.

[13] Para 46.

[14] Para 48.