The Lutzkie Group brought arbitration proceedings against Close-Up Mining, Willem Pieter Tenner, and Close-Up Machinery and Plant Hire concerning two agreements styled Binding Term Sheet 1 and 2. The arbitrator was retired Judge Phillip Boruchowitz. Close-Up Mining raised a defence of repudiation by the Lutzkie Group in their heads of argument but had not pleaded this defence in their pleadings. The arbitrator declined to consider the defence of repudiation, finding that it had not been pleaded and therefore fell outside his jurisdiction. The arbitrator made an award on 18 November 2020. Close-Up Mining brought review proceedings in the Gauteng Division of the High Court, Pretoria, seeking to set aside the award under s 33(1) of the Arbitration Act 42 of 1965. Close-Up Mining contended the arbitrator had a discretion to entertain the defence even though not pleaded (relying on Shill v Milner principle) and committed a gross irregularity by failing to recognize this discretion. They also claimed the arbitrator exceeded his powers by making Mr Tenner a party to Transaction 1 when he was not. The high court dismissed the review with costs. Close-Up Mining appealed with leave.
The appeal was dismissed with costs, including costs of two counsel where employed. The second respondent (Lutzkie Group) was ordered to pay the costs of volumes 4-12 of the record.
An arbitrator's jurisdiction and competence to decide disputes is determined solely by the arbitration agreement and the rules adopted by the parties. While parties may agree to confer upon an arbitrator a discretionary power to decide matters not pleaded (analogous to the Shill v Milner discretion available to courts), such a power must be clearly provided for in the arbitration agreement. The AFSA commercial rules require substantive disputes to be raised through pleadings and do not confer a general discretionary power upon an arbitrator to adjudicate substantive defences not pleaded. Article 11.1 of the AFSA rules, which grants the arbitrator "the widest discretion and powers allowed by law," relates to the arbitrator's powers in deciding disputes raised in the proceedings according to AFSA procedures, not a power to determine what constitutes a dispute raised in the proceedings. Therefore, an arbitrator applying AFSA rules acts within jurisdiction by declining to decide a substantive defence not raised in the pleadings and commits no gross irregularity under s 33(1)(b) of the Arbitration Act 42 of 1965.
The court made several notable observations: (1) Courts possess inherent powers under s 173 of the Constitution because they have a constitutional duty to secure justice extending beyond litigants' interests; arbitrators have no such inherent power. (2) A discretionary power of the Shill v Milner type in arbitration is unusual because it creates a "paradox of party autonomy" - parties would confer power on the arbitrator to extend his own jurisdiction, something ordinarily reserved for parties to determine. (3) If parties wish to confer such discretionary power, the arbitration agreement should make this plain. (4) The only matters the Arbitration Act specifically excludes from arbitration are matrimonial causes and matters relating to status. (5) The court distinguished between primary substantive disputes (which must be pleaded) and "dependent disputes" (procedural matters like discovery, joinder) that facilitate determination of primary disputes and may be raised during proceedings. (6) The court affirmed the principle that where records contain unnecessary documentation, the party responsible for such inclusion should bear the associated costs, particularly in voluminous records.
This case is significant for clarifying the scope of an arbitrator's jurisdiction in South African arbitration law. It establishes that: (1) Party autonomy allows parties to confer discretionary powers on arbitrators to decide unpleaded matters, but such powers must be clearly agreed upon. (2) An arbitrator's competence derives solely from the arbitration agreement, not from inherent powers as courts possess. (3) The AFSA commercial rules do not confer a general discretion analogous to Shill v Milner to entertain substantive defences not raised in pleadings. (4) Arbitration rules requiring detailed pleadings reflect an intention that substantive disputes be defined through the pleading process. (5) The distinction between primary pleaded disputes and dependent procedural disputes that may arise in proceedings. The judgment reinforces that arbitrators, unlike courts, have no inherent powers and must operate strictly within the boundaries of their agreed mandate. It also provides guidance on proper record preparation in appeals, holding parties responsible for costs of unnecessarily voluminous records.
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