Herholdt v Nedbank Limited

Andre Herholdt was employed as a financial planner by Nedbank Limited. A client, Mr John Smith, made Herholdt a beneficiary in two wills - the first executed on 28 December 2007 leaving him £92,000, and the second executed on 27 May 2008 appointing Herholdt and his life partner as sole heirs. Despite knowing of Nedbank's policy requiring disclosure of conflicts of interest, and being specifically told by his regional manager (Ms Esterhuizen) in May 2008 that he must disclose such matters to his line manager, Herholdt failed to make the required disclosure. When advised by Mr Williamson (from an associated company) that the bequest raised conflict of interest issues requiring disclosure, letters were prepared confirming the client's free will but were left with Williamson, and no disclosure was made to Herholdt's line manager or other bank personnel. Nedbank dismissed Herholdt for dishonestly failing to disclose the conflict of interest. He challenged his dismissal before the CCMA, which found in his favour. Nedbank successfully reviewed the CCMA award in the Labour Court (per Gush J), and this decision was upheld by the Labour Appeal Court.

• What are the proper grounds for reviewing a CCMA arbitration award under section 145(2)(a) of the Labour Relations Act 66 of 1995?
• What constitutes a 'gross irregularity' in the conduct of arbitration proceedings under section 145(2)(a)(ii) of the LRA?
• What is the correct test for unreasonableness in reviewing CCMA awards following the Constitutional Court's decision in Sidumo?
• Whether the Labour Appeal Court erred in applying concepts of 'latent irregularities' and 'dialectical unreasonableness' as grounds of review
• Whether the Labour Court and Labour Appeal Court improperly substituted their own findings for those of the arbitrator, conducting an appeal rather than a review
• Whether the CCMA arbitrator's finding that Herholdt was not dishonest was one that a reasonable decision-maker could reach on the evidence

The appeal was dismissed with costs, including costs of two counsel. The decision of the Labour Appeal Court setting aside the CCMA arbitration award was upheld.

A review of a CCMA award is permissible only if the defect in the proceedings falls within one of the grounds in section 145(2)(a) of the LRA. For a defect to amount to a 'gross irregularity' under s 145(2)(a)(ii), the arbitrator must have either: (1) misconceived the nature of the inquiry; or (2) arrived at an unreasonable result. A result will only be unreasonable if it is one that a reasonable arbitrator could not reach on all the material that was before the arbitrator. Material errors of fact, as well as the weight and relevance to be attached to particular facts, are not in and of themselves sufficient for an award to be set aside, but are only of consequence if their effect is to render the outcome unreasonable. The test is whether the decision is one that could NOT reasonably be reached (a more stringent test than asking whether it is one the arbitrator could reasonably reach). The test is concerned primarily with the result rather than the process of reasoning. The reviewing court must examine the merits 'in the round' by determining whether, in light of the issue raised by the dispute, the outcome reached was not one that could reasonably be reached on the evidence and other material properly before the arbitrator. Courts must avoid 'judicial overzealousness' in setting aside administrative decisions that do not coincide with the judge's own opinions. The concepts of 'latent irregularities' (process-related unreasonableness based on failure to consider material facts) and 'dialectical unreasonableness' (unreasonableness in the reasoning process) as developed in some labour court decisions are inconsistent with Sidumo and not valid grounds of review.

The Court noted that the drafters of the LRA deliberately chose arbitration as the preferred mechanism for labour disputes and deliberately selected the narrowest possible grounds of review (copied from the Arbitration Act 42 of 1965) while rejecting the possibility of appeals. This was done not because review is inexpensive or speedy, but because it sets an extremely high standard for setting aside awards which, together with inherent costs and delays, would deter challenges and support the aim of speedy and inexpensive resolution. The Court observed that 'few decisions that are wrong are likely to be upheld as reasonable' (a proposition by Murphy AJA in the LAC) cannot be supported. The Court traced the history of attempts by various courts since the CCMA's inception to provide more generous standards of review, culminating in this Court's decision in Rustenburg Platinum Mines that applied PAJA to CCMA awards - an approach subsequently overruled by the Constitutional Court in Sidumo. The Court noted that a dictum by Ngcobo J in the minority judgment in Sidumo (regarding failure to apply mind to material facts) was not reconciled with established authority and was contrary to the approach of the majority judgment. Similarly, a dictum by Ngcobo J in New Clicks (regarding failure to consider relevant factors) expressly related to PAJA and had no application to LRA reviews. The Court emphasized that the height of the bar for review under s 145(2)(a) is apparent from the corresponding provisions of the Arbitration Act, where 'gross irregularity' concerns the conduct of proceedings rather than merits, with a qualification where decision-makers misconceive the whole nature of the enquiry.

This judgment is a landmark decision in South African labour law that definitively restates and clarifies the grounds for reviewing CCMA arbitration awards under section 145(2)(a) of the LRA. It rejects attempts by the labour courts to expand the grounds of review beyond those endorsed in Sidumo v Rustenburg Platinum Mines. The judgment emphasizes the critical distinction between review and appeal in labour arbitrations and reaffirms the high threshold required to set aside CCMA awards, supporting the LRA's policy objective of finality in arbitrations. The decision provides authoritative guidance on what constitutes a 'gross irregularity' under s 145(2)(a)(ii) and clarifies that material errors of fact are not in themselves sufficient grounds for review unless they render the outcome unreasonable in the Sidumo sense. The case has significant practical importance given that CCMA arbitrations constitute the primary dispute resolution mechanism for labour disputes in South Africa, with approximately 160,000 arbitrations annually, 80% being dismissal disputes. The intervention by COSATU as amicus curiae reflects the broader significance of the legal principles at stake for labour relations.