Challenging an arbitration award: Is it there for the taking?
Challenging an arbitration award: Is it there for the taking?
Arbitrations are regarded as a useful means of alternative dispute resolution for parties wishing to avoid long drawn-out court proceedings. Notably, one of the advantages of arbitration as opposed to litigation is the efficiency in the finality of the process. However, agreements which make provision for arbitration in the event of a dispute may be open to abuse by a party seeking to delay the finality of such dispute, with the resultant award being challenged by the dissatisfied party.
Section 33(1) of the Arbitration Act, No 42 of 1965 sets out the grounds in terms of which a party may apply to court for the setting aside of an arbitration award where:
- an arbitrator has misconducted him/herself in relation to his/her duties as arbitrator or umpire;
- an arbitrator has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded his/her powers; or
- an award has been improperly obtained.
The Supreme Court of Appeal (SCA) recently handed down judgment in the case of State Information Technology Agency SOC Limited (SITA) v ELCB Information Services (Pty) Ltd & another (995/16)  ZASCA 120 in which the court set out factors that must be taken into account when considering whether an arbitration award should be set aside on grounds of alleged gross irregularity in the conduct of the arbitration proceedings.
The case involved service agreements concluded between SITA and ELCB Information Services for the procurement of information technology goods and services on behalf of SITA and other government departments.
The parties had not been able to locate the signed copy of one of the agreements, and consequently SITA denied that the contract was ever concluded.
ELCB performed all its contractual obligations in respect of both agreements, having rendered the professional services to SITA. Likewise, SITA fulfilled its obligations and duly paid a substantial portion of what was due to ELCB.
Both agreements provided that if a dispute arose between the parties, then such dispute would be referred to arbitration which would be conducted in accordance with the rules of the Arbitration Foundation of Southern Africa.
A dispute arose between the parties for unpaid sums due to ELCB and the matter was reserved for arbitration. SITA failed to adhere to the pre-arbitration directives issued by the arbitrator, as agreed to by the parties, and failed deliver a statement of defence and further process.
On the date of the arbitration hearing, SITA brought an application for an order declaring both agreements constitutionally invalid, unlawful and unenforceable stating that SITA had failed to comply with the procurement procedures applicable to state procurement of goods and services in entering into agreements. In this application, SITA also sought an order that the arbitration proceedings be stayed or postponed pending the final determination of the validity of the agreements.
The impugned award
The arbitrator dismissed SITA’s application of invalidity of the agreements with costs, and in so doing, refused to stay the arbitration proceedings. At this juncture SITA and its legal representatives left the proceedings, and the arbitration continued in their absence.
Ultimately, the arbitrator made an award having considered the undisputed evidence of ELCB. SITA was ordered to pay certain amounts plus interest to ELCB together with the costs of arbitration.
Grounds challenging the arbitration award
SITA filed an application in the High Court, seeking an order to review and set aside the arbitration award. This application was unsuccessful.
SITA then filed leave to appeal to the SCA, where the main issue was whether the arbitration award should be set aside on the grounds that the arbitrator committed gross irregularities in that:
- SITA was excluded from participating from the arbitration proceedings – thus was not given a hearing;
- the second agreement was not signed by SITA and thus never came into existence;
- the arbitrator exceeded his powers when he awarded interest in the absence of demand for payment;
- the arbitrator failed to properly apply his mind to the evidence placed before him; and
- the arbitrator contravened provisions of the second agreement in that he failed to give written reasons.
The SCA stated that an alleged irregularity must be of such a nature that it renders the decision reached unreasonable in the circumstances. A review of an arbitrator’s award does not deal with the merits, but the manner in which a decision was reached. Thus, whether the arbitrator came to an incorrect conclusion is irrelevant in arbitration proceedings.
The SCA’s decision
Given that SITA had left the arbitration proceedings on its own volition, the SCA found that SITA failed to provide compelling reasons that the arbitrator, in conducting the proceedings, committed gross irregularities which warranted the setting aside of the award. Having considered all the grounds relied on for the setting aside of the award, the SCA concluded that none of the grounds raised had any merit, and thus dismissed the appeal.
This case shows that reviewing and setting aside an arbitration award on grounds of irregularities is not simply there for the taking. Parties seeking to resolve disputes by way of arbitration should be mindful that the role of an arbitrator is to strike a balance between competing issues between the parties based on the facts and evidence before them.
This case reminds all litigants seeking to resolve their disputes by way of arbitration that they should act with utmost good faith so as to ensure that disputes are resolved without delay. As a general rule, parties dissatisfied with the outcome of the proceedings should resist the temptation of challenging the arbitration award on grounds of an alleged gross irregularities, unless there are grounds to do so, more so where the parties have not made provision for an appeal.
The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages. Please refer to our full terms and conditions. Copyright © 2023 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us firstname.lastname@example.org.
We support our clients’ strategic and operational needs by offering innovative, integrated and high quality thought leadership. To stay up to date on the latest legal developments that may potentially impact your business, subscribe to our alerts, seminar and webinar invitations.Subscribe