26 September 2018 by Dispute Resolution Alert

Arbitration awards: Severing the good from the bad

Even though the legal principles that govern the circumstances in which a court can set aside an arbitration award are reasonably clear, the court in Palabora Copper (Pty) Ltd v Motlokwa Transport and Construction (Pty) Ltd [2018] 2 All SA 660 (SCA) readily accepted that their application in any particular instance may be problematic. In this matter, the court had to determine whether a finding of gross irregularity in the conduct of the arbitration proceedings necessarily results in the entire award being set aside, or whether there is scope for the court to preserve and enforce the ‘good’ part of the award and set aside the ‘bad’.

Section 33(1)(b) of the Arbitration Act, 1965 provides that where an arbitrator has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded his or her powers, the court may make an order setting the award aside. A 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 the setting aside of an award. If parties choose arbitration, courts endeavour to uphold their choice and do not lightly disturb it. Admittedly, s33(1)(b) says nothing about the situation where the irregularity or excess of powers affects only a discrete part of the award.

In Palabora Copper, the court found that this calls for a proper interpretation of the court’s powers under s33(1)(b) of the Arbitration Act. In doing so, the court undertook a survey of cases in which the courts have accepted 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. Bearing in mind that s33(1)(b) of the Arbitration Act deals with both exceeding powers and gross irregularity as grounds for setting aside an award, the court found no reason why the same principle could not apply where only part of an award is infected by a gross irregularity.

The court was of the view that this approach reflected a logical and sensible construction of the Arbitration Act. In addition, there did not appear to be any sound reason why an arbitration, that had been properly conducted on certain issues and had properly determined those issues, should be set aside in its entirety, because of an irregularity in relation to a wholly separate issue subject to the court being satisfied the latter issue is wholly separate from the others. However, if it can be proved that the arbitrator’s gross irregularity had a distorting effect to the entire conduct of the arbitration proceedings, then the court will set aside the arbitration award in its entirety.

The court concluded that this approach further gave effect, as far as possible, to the parties’ agreement to have their dispute determined by the arbitrator and was consistent with those cases in which the 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.

The case is a welcome development in the dynamic jurisprudence of domestic arbitrations but perhaps more importantly, it is a reminder of the increasing need for the legislature to address these issues and come up with necessary amendments to the out-of-date Arbitration Act.

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