In December 2014, a tender for the removal of waste from Palabora Copper’s (Pty) Ltd (“Palabora”) mine and smelter was awarded to Motlokwa Transport & Construction (Pty) Ltd (“Motlokwa”). This award was confirmed in correspondence (“Notice of Contract Award”) which was addressed to Motlokwa from Palabora and subsequently signed by a representative of Motlokwa confirming receipt of the award and the terms and conditions thereto.
This relationship ultimately deteriorated and the parties referred the matter to Arbitration. Following the handing down of the Award in this regard, Motlokwa approached the High Court to have the Award made an order of court in terms of section 31(1) of the Arbitration Act 42 of 1965 (“the Act”). This application was opposed by Palabora who launched a counter-application in terms of section 33(1)(b) of the Act to set aside the aforementioned Award. The Court a quo proceeded to have the Award made an order of Court and refused Palabora’s leave to appeal same. The Supreme Court of Appeal (“SCA”) however granted leave on petition.
Palabora appealed the Order on the following grounds:
1. Motlokwa held the onus in proving that it had suffered damages which it had failed to substantiate, while the Arbitrator wrongly placed the onus on Palabora to show that Motlokwa would not have suffered any damages;
2. The Arbitrator misconstrued an agreement on quantum by overlooking the qualifications embodied in said agreement, which demanded that Motlokwa prove certain assumptions in respect of its counterclaim; and
3. In prematurely ruling that a valid contract existed, the Arbitrator pre-empted his decision in respect of Palabora’s later argument that there was a lack of consensus. This early conclusion prevented the properly consideration of the arguments put before the Arbitrator, invalidating his findings. This amounted to a gross irregularity.
Palabora argued that it accepted Motlokwa’s Tender by way of the Notice of Contract Award, which made provision for a contract to follow, which would formally conclude the terms and conditions of the working relationship. This contract was never signed by Motlokwa, with the result that no binding agreement existed. Accordingly, any contract that came into existence had been induced by mutual mistake, alternatively, iustus error, or had been lawfully cancelled.
In addition to the above, the withdrawal of Motlokwa’s joint venture partner meant that the company lacked the necessary experience and skill to perform the work under the contract. Palabora maintains that if Motlokwa was able to secure the necessary resources they would not have been able to attend to this timeously. This would have inevitably led to Palabora terminating the contract in question.
On the other hand, Motlokwa alleged that Palabora’s acceptance of its tender and the subsequent signing of the Notice of Contract Award amounted to a valid contract, the breach of which entitled it to a counterclaim for damages.
The Arbitrator, in an attempt to swiftly deal with the issues surrounding the Notice of Contract Award, heard arguments from both Counsel and preliminarily ruled that a binding contract existed between the parties by virtue of the acceptance of Motlokwa’s tender.
As for the question of Motlokwa’s counterclaim, the parties’ expert witnesses concluded an agreement in respect of the quantum of the claim for damages, which was subject to two assumptions, namely:
1. Motlokwa being able to secure the necessary financing to purchase the equipment to complete the work in question timeously; or
2. Motlokwa being able to secure financing to lease the said equipment timeously.
Motlokwa was obliged to prove that it would have suffered damages as a result of the repudiation or unlawful cancellation of the contract, and the quantum of such damages. The failure to prove this would result in an order of absolution from the instance. Accordingly, the quantum agreement did not relieve Motlokwa of this obligation. The Arbitrator was still required to investigate Motlokwa’s ability to raise the finances necessary for those purposes, however this was overlooked
|The High Court’s order was set aside and replaced with the following: 1. appeal upheld with costs;
2. the section 31(1) application and order was dismissed; and
3. the section 33(1)(b) application was upheld in respect of the question of damages, and the Award to that extent was set aside.
The SCA went on to outline the following factors as being the standards against which a section 33(1)(b) application is held:
1. Where an Arbitrator misconceives the nature of the enquiry in the Arbitration proceedings and such conduct denies a party a fair hearing and/or trial of the issues this constitutes a gross irregularity;
2. Should an Arbitrator engage in the correct enquiry, but blunders either on the facts or the law, that is not an irregularity and is insufficient grounds to set aside an Award; and
3. If parties elect Arbitration, the courts endeavour to uphold this election and do not lightly disturb same.
Further, the SCA remarked that an Arbitrator who makes a preliminary ruling on an issue and fails to hear any ancillary arguments in this regard effectively excludes any argument in respect of these ancillary issues and/or pre-determines the answer to same. Such conduct amounts to a gross irregularity and was the case in the matter at hand. As such Palabora was deprived of a fair trial of the issues in respect of the counterclaim raised by Motlokwa.
The SCA emphasised its reluctance to intervene in instances where parties to a dispute elect to resolve the issue at hand by way of Arbitration proceedings, except where the Arbitrator commits a gross irregularity.
Written by Kirsten Chetty and Charlotte Clark