Palabora Copper (Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd

On 23 December 2014, Palabora Copper awarded a tender contract to Motlokwa Transport for removal of waste from its mine and smelter, with the award to run from 1 March 2015 to 31 December 2016. Relations between the parties deteriorated and Palabora launched proceedings seeking a declaration that no valid and binding contract had been concluded, or alternatively that any contract had been duly cancelled. Motlokwa counterclaimed on the basis that a binding contract existed and sought specific performance, alternatively damages for loss of profits. The parties agreed to refer the dispute to arbitration before a retired judge, Justice C J Claassen. The arbitrator made various interim findings holding that a valid and binding contract had been concluded and had not been lawfully cancelled. He dismissed Palabora's claim and awarded Motlokwa damages of R39,885,315 on its counterclaim. Palabora applied to set aside the award under s 33(1)(b) of the Arbitration Act 42 of 1965 on grounds of gross irregularity. The High Court upheld the application to make the award an order of court and dismissed the counter-application to set the award aside. Palabora appealed to the Supreme Court of Appeal.

• Whether the arbitrator committed a gross irregularity in the conduct of the arbitration proceedings by prejudging the issue of consensus before hearing full argument
• Whether the arbitrator committed a gross irregularity in relation to the counterclaim by misconstruing the quantum agreement, misplacing the onus of proof, and preventing Palabora from having a fair trial on whether Motlokwa had suffered damages
• Whether it is permissible for a court to set aside only part of an arbitration award when a gross irregularity affects only a discrete part of the award, or whether the entire award must be set aside
• What relief should be granted when part of an arbitration award is set aside for gross irregularity

The appeal was upheld with costs, including costs of two counsel. The order of the High Court was set aside and replaced with an order: (1) dismissing the application to make the arbitration award an order of court in terms of s 31(1) of the Arbitration Act 42 of 1965; (2) upholding the application to set aside the award in terms of s 33(1)(b) in regard to paragraph D thereof (the award on the counterclaim) and setting aside that paragraph; (3) submitting the dispute regarding the claim in reconvention to a new arbitration tribunal to be agreed between the parties, failing which to be determined by the court within 30 days; and (4) ordering the applicant (Motlokwa) to pay the costs of the application and counter-application, including costs of two counsel.

1. Where an arbitrator misconceives the nature of the enquiry in arbitration proceedings with the result that a party is denied a fair hearing or fair trial of the issues, this constitutes a gross irregularity under s 33(1)(b) of the Arbitration Act 42 of 1965. 2. In a claim for damages based on loss of profits arising from breach of contract, the onus rests on the claimant to prove both that it suffered loss (including that it would have been able to perform the contract) and the quantum of that loss. 3. Where a gross irregularity or excess of powers under s 33(1)(b) of the Arbitration Act affects only a discrete part of an arbitration award, the court may set aside only that part if it is clearly severable from the rest, rather than setting aside the entire award. The bad portion must be clearly separable in its nature so that it can be seen that the valid part of the award is not at all affected by the faulty portion. 4. Where part of an arbitration award is set aside, the dispute in relation to that part must be submitted to a new arbitration tribunal in terms of s 33(4) of the Arbitration Act.

The court made several obiter observations: 1. The court noted with some irony that a typist consistently typed 'iustus error' as 'useless error' throughout the record. 2. The court observed that making an order under s 31(1) of the Arbitration Act to make an award dismissing a claim an order of court serves no useful purpose, as such an order simply dismisses the claim and the principles of res judicata prevent it from being revived. The purpose of an order under s 31(1) is to make the execution processes of the High Court available to enforce monetary or other substantive awards. 3. The court commented that the confusion in the arbitration was exacerbated by counsel persistently describing issues raised in amplification of a denial as 'defences', when they were clearly not defences but went to the question of whether the claimant had proved its case. 4. The court noted that in many damages cases based on loss of profits, there is no real issue concerning the ability of the injured party to perform the contract, and the issue is rather as to quantification of losses, but in principle it remains for the claimant to allege and prove both the fact of loss and the amount thereof.

This case provides important clarification on the principles governing when arbitration awards may be set aside under s 33(1)(b) of the Arbitration Act 42 of 1965 for gross irregularity. It confirms that where an arbitrator misconceives the nature of the enquiry with the result that a party is denied a fair hearing or fair trial of the issues, this constitutes a gross irregularity. Importantly, the judgment establishes that where a gross irregularity or excess of powers affects only a discrete part of an award, the court may set aside only that part if it is clearly severable from the rest, rather than setting aside the entire award. This gives effect to the parties' agreement to have their dispute determined by arbitration as far as possible. The case also provides guidance on the onus of proof in damages claims based on loss of profits, confirming that the claimant bears the onus of proving both the fact of loss and the quantum thereof. In the context of loss of profits claims, the claimant must prove that it would have been able to perform the contract and would have earned the profits claimed.