Abrahams and Another v RK Komputer Sdn Bhd and Others

• Jurisdiction: South Africa
• Judge: Gauntlett AJ
• Judgment Date: 09 December 2008
• Citation: 2009 (4) SA 201 (C)
• Docket Number: 7893/2008
• Hearing Date: 04 December 2008
• Counsel: MA Albertus SC for the first applicant. No appearance for the second applicant. JH Josephson for the first respondent. No appearance for the second and third respondents.
• Court: Cape Provincial Division

Gauntlett AJ: G

The arbitral and review proceedings

This is a review under the Arbitration Act 42 of 1965 (the Act) of an award by an arbitration appeal tribunal.

The arbitration proceedings arose from a contractual dispute between H the first respondent and the first applicant. In July 2005 the first respondent instituted action against the first applicant in this court, claiming payment of the sum of R3 469 527 against a tender by the first respondent to the first applicant of shares which the former held in the second applicant. The first applicant triggered an arbitration. She did so I by raising a special plea that the matter should have been referred to arbitration. The parties then agreed to do that. In this process the parties exchanged the names of potential arbitrators for consideration: the first respondent put forward five names, including that of the third respondent. In response the first applicant put forward the name of the second respondent. As a result of their unavailability on the agreed date for the J

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A commencement of the arbitration, another senior counsel was selected as the arbitrator at first instance.

He dismissed the first applicant's claims. Thereupon the parties again exchanged names, ultimately agreeing that the second and third respondents should be appeal arbitrators. The second respondent is a senior B counsel and the third respondent a junior.

In March this year the appeal arbitrators handed down an award dismissing the appeal. Unusually, it was not presented as a joint award but as an award by the third respondent, the second respondent stating his concurrence. It comprises a detailed analysis of issues, dealing at C some length with the applicants' argument, rejecting aspects of the argument for the first respondent, and not upholding the reasoning of the arbitrator at first instance in all respects.

The basis for the review

The review has been instituted by the first applicant (the second D applicant has ceased trading). The second and third respondents abide the result, but have filed affidavits responding to the allegations made against them.

In seeking the review of the appeal award, the first applicant relies upon both misconduct and gross irregularity in the conduct of the arbitration E proceedings. She invokes in this regard ss 33(1)(a) and (b) of the Act, respectively. In argument her counsel (dealing with his reliance on gross irregularity) acknowledged that mistakes of law or fact are not per se bases for setting aside an arbitration award. [1] But his argument was that a gross or manifest mistake which establishes mala fides or partiality is F enough to warrant interference. [2] He explained that the approach that he would adopt, in relation to the facts of this matter, would invoke the judgment of Ngcobo J in Sidumo and Another v Rustenburg Platinum Mines Ltd and Others. [3] This (following the distinction indicated by Schreiner J in Goldfields Investments Ltd and Another v City Council of Johannesburg and Another), [4] emphasises that patent irregularities in the G conduct of proceedings are to be distinguished from latent irregularities - which are irregularities taking place inside the mind of the adjudicator, and only ascertainable from the reasons given by him or her. That exercise -

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'will inevitably require the reviewing court to examine the reasons given A for the award. In doing so the reviewing court must be mindful of the fact that it is examining the reasons not to determine whether the conclusion reached by the commissioner is correct but whether the commissioner has committed a gross irregularity in the conduct of the proceedings.' [5]

Thus the argument amounts to these successive contentions: the appeal B award was vitiated by irregularities; these were latent, not patent; they are to be detected in the reasons given in the award; these reasons are insufficiently supported by the evidence; from this disjunct a gross irregularity is to be construed. That alleged irregularity takes a somewhat different form (as will shortly be considered) in the case of each of the C two appeal arbitrators.

The reliance on misconduct, in the alternative to gross irregularity, accepted that for its purposes, too, mistake is not enough. In current South African law [6] a flawed award constitutes misconduct'only if the mistake is of so gross and manifest a nature that it demonstrates moral D turpitude in the sense of dishonesty, partiality or bad faith'. [7] This, counsel said, was indeed his case.

A third basis of review was advanced: a reasonable perception of bias, in circumstances explained below.

The two contractual claims: gross irregularity or misconduct in their E adjudication upon appeal?

What was at stake in the arbitration proceedings were two claims instituted by the first respondent against the applicants. The first (claim A, as it has been termed throughout) related to the exercise of a 'put option', arising from an agreement between the first respondent and first F applicant. The second (claim B) related to an agreement involving the redemption by the first respondent of certain redeemable preference shares in the second applicant.

On appeal the appeal arbitrators were called upon to determine three G issues in relation to claim A: whether an alleged breach of an obligation to furnish financial statements constituted a material breach, in the sense that it had an adverse and material impact on the second applicant; whether there was complicity by the first respondent in the alleged

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A breach; and whether the first respondent had waived its right to exercise the 'put option' in the light of the agreement relating to the redemption of shares.

On the first aspect, the review attack was two-pronged. As regards the third respondent, it was that he 'failed to source his findings in the B evidence [and that] his failure to do so leads to the conclusion that his findings was [sic] mala fide or motivated by an ulterior or improper purpose'. As regards the second respondent, the 'inference is irresistible that [he] uncritically and slavishly went along with the final award'.

What happened in the preparation of the award was less usual in two C respects. The first, as already noted, is that instead of the usual joint award for the appeal tribunal, the award was presented as one written by the third respondent and concurred in by the second. The other is that the second respondent attached to his answering affidavit a first draft of the appeal award (of which the first applicant had been unaware at the time she determined to institute this review, and which accordingly is not D relied on in her founding affidavit). In handwritten notes on the draft prepared by the third respondent, the second respondent indicated that he disagreed in relation to the question as to whether an adverse effect - the first of the three sub-issues in respect of claim A, described above - was established on the facts. His detailed note ends thus:

E 'Sorry my friend but unless we can reach consensus I will have to write a short dissent. Let me have your thoughts. I think the award is well considered and written up to para 41 by the way. Ismail.'

What transpired in preparing and finalising the appeal award is the subject of explanatory affidavits by the two appeal arbitrators. The filing F of these affidavits is explicable given the allegations. They record that the third respondent, at the end of the hearing, had formed no clear view in the matter either way. The second respondent was inclined at that stage to uphold the claim in relation to claim A, but, like the third respondent, saw no merit at all in the appeal relating to claim B. The two appeal arbitrators met to discuss their divergent preliminary views, and debated G the proposed award. As the second respondent testifies:

'After considering the issues raised by me the third respondent and...