The first appellant company and trustees of the Lynch Trust (the appellants) sold their shareholding in Formex Industries (Pty) Ltd to Mettle Operations Ltd (later ceded to Mettle, the first respondent) for R24 million in April 2003. The sale included 73 warranties in favour of Mettle and an indemnity clause (clause 8.5) for breach of warranties. Clause 22 of the deed required the aggrieved party to give written notice of any breach and allow 30 days to remedy before claiming specific performance, cancellation or damages. Mettle paid R18 million initially but on 31 March 2004, when R6 million became due, paid only R1,483,270.11, claiming set-off for alleged losses from breach of warranties. The appellants claimed the outstanding balance. Mettle raised a defence of set-off and counterclaim based on breach of warranties. The matter proceeded to arbitration with an appeal provision. The arbitrator initially held that Mettle's letter of 31 March 2004 constituted proper notice under clause 22 but later found Mettle had not given proper notice, thus all its claims failed. He awarded the appellants the full outstanding balance (R8,434,579.17 plus interest and costs). However, he also made findings on the merits indicating Mettle had proved losses totaling approximately R2,900,125.50. Mettle appealed to an arbitral appeal tribunal. The majority of the tribunal held that clause 22's notice requirement only applied to claims for specific performance and cancellation, not damages. Since Mettle claimed damages, notice was not required. The tribunal found Mettle established losses of R3,974,750.42 and remitted two claims (tool rework and obsolete stock) back to the arbitrator for adjudication. The appellants then sought to review the tribunal's award under s 33(1) of the Arbitration Act 42 of 1965.
The appeal was dismissed with costs on the attorney and own client scale, including the costs of two counsel.
1. Errors of law or fact committed by an arbitrator or arbitral appeal tribunal do not in themselves constitute grounds for review under s 33(1)(b) of the Arbitration Act 42 of 1965. 2. To justify a review on the basis of 'gross irregularity' under s 33(1)(b), the irregularity must be of such a serious nature that it resulted in the aggrieved party not having their case fully and fairly determined. 3. Arbitrators, including arbitral appeal tribunals, are bound by the pleadings (which on appeal include notices of appeal and cross-appeal). Unlike courts, arbitrators have no inherent power to determine issues or grant relief outside the pleadings. Arbitrators who stray beyond the pleadings exceed their powers as contemplated by s 33(1)(b). 4. 'Misconduct' under s 33(1)(a) denotes an element of moral turpitude or mala fides on the part of the arbitrator; a mere mistake cannot constitute misconduct. 5. Where an arbitral award is capable of interpretation that shows the tribunal stayed within its powers and addressed the issues properly before it, courts should adopt that interpretation rather than one that would render the award reviewable. 6. Courts will give effect to contractual agreements relating to costs (such as attorney and own client costs) unless good grounds exist for following a different route.
The court noted that by the time the matter came before the tribunal, it was already clear that Mettle's reliance on set-off could not succeed because its claims were patently not liquidated. Both parties approached the matter before the tribunal on the basis that all outstanding issues related to Mettle's counterclaim and that any award in its favour would lead to a deduction from the appellants' undisputed main claim. The tribunal simply adopted the same practical approach. The court also observed that the long procedural history of the dispute (including a previous trip to the Supreme Court of Appeal reported as Gutsche Family Investments (Pty) Ltd v Mettle Equity Group (Pty) Ltd 2007 (5) SA 491 (SCA)) involved four years between the initial arbitration and the hearing on the merits, demonstrating the complexity and protracted nature of the dispute. The court's reference to established precedents on the limited scope of review (Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA); Hos & Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing & Consulting (Pty) Ltd 2008 (2) SA 608 (SCA); Road Accident Fund v Cloete NO 2010 (6) SA 120 (SCA)) suggests that these principles are now well-settled and require no further elaboration.
This case clarifies the limited scope for judicial review of arbitration awards under s 33(1)(b) of the Arbitration Act 42 of 1965. It establishes that: 1. Mere errors of law or fact by arbitrators, even on appeal tribunals, are not reviewable - courts will not interfere simply because they disagree with the arbitrator's conclusions. 2. The grounds for review under s 33(1)(b) are narrow: only gross irregularities that prevent a fair hearing or instances where arbitrators exceed their powers (such as going beyond the pleadings) justify setting aside an award. 3. Arbitral tribunals are bound by the pleadings, notices of appeal and cross-appeal, and have no inherent power to determine issues or grant relief outside those parameters. 4. Courts will carefully interpret arbitration awards in their proper context and with reference to what was actually in dispute before the tribunal. 5. Where parties have agreed to attorney and own client costs in their contract, courts will generally give effect to such agreements unless good grounds exist to do otherwise. The case reinforces South Africa's pro-arbitration policy and the principle of minimal judicial intervention in arbitration, consistent with the finality that parties seek when choosing arbitration over litigation.
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