Hos+Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing & Consulting (Pty) Ltd

Hosmed Medical Aid Scheme and Thebe Ya Bophelo Healthcare (Thebe), a broker, entered into a contract in November 1999 whereby Thebe would introduce new members and provide ongoing services for fees. Following regulatory amendments in 2000, the parties believed ongoing service fees were no longer permissible and concluded amending agreements in March 2001 and August 2001 deleting the ongoing services fee clause. In 2003, regulations were again amended to permit such fees, and a new agreement was concluded in August 2003. In February 2003, Mr. Laird became CEO of Thebe and, unaware of the 2001 amendments, claimed substantial fees for ongoing services between 2001-2003. Hosmed denied liability, and the dispute was referred to arbitration. The arbitration agreement specified that issues would be determined by the pleadings filed and that the arbitration would be conducted according to High Court rules. Thebe argued the 2001 amendments were void under section 228 of the Companies Act 61 of 1973 as they constituted disposal of the greater part of Thebe's assets without shareholder approval. Hosmed pleaded estoppel and the Turquand rule. The arbitrator ruled in favor of Thebe on liability. Hosmed appealed to an arbitration appeal tribunal which reversed the decision, finding there was unanimous assent to the disposal (thus obviating the need for a formal resolution), even though this issue had not been pleaded.

• Whether an arbitration appeal tribunal exceeded its powers by deciding an issue (unanimous assent) that had not been pleaded by the parties
• Whether the tribunal committed a gross irregularity warranting setting aside of the award under section 33 of the Arbitration Act 42 of 1965
• Whether issues in arbitration can be broadened beyond pleadings based on evidence presented
• The scope and limits of an arbitrator's jurisdiction as defined by the arbitration agreement
• The appropriate remedy when an arbitration award is set aside under section 33(4) of the Arbitration Act

The appeal succeeded in part and failed in part. The order of the High Court, Pretoria was set aside. The award of the arbitration appeal tribunal was set aside. The dispute was referred to a new arbitration appeal tribunal to be constituted in terms of clause 17.4 of the arbitration agreement between the parties. The parties were required to agree on the composition of the new tribunal within ten court days, failing which the Arbitration Foundation of South Africa would nominate three arbitrators. No order was made as to costs in the Supreme Court of Appeal. The application in the court below succeeded with costs including those of two counsel.

An arbitration tribunal's jurisdiction is strictly limited to the matters submitted to it by the parties in their arbitration agreement. Where parties have expressly defined the issues to be determined by reference to pleadings, the tribunal cannot decide issues not pleaded, even if those issues are touched upon in evidence. The principle in Shill v Milner allowing departure from pleadings where issues are fully canvassed does not apply to confer jurisdiction on arbitrators beyond the submission agreement. When an arbitration tribunal decides an issue not submitted to it, it exercises a power it does not have and thus exceeds its powers within the meaning of section 33(1)(b) of the Arbitration Act 42 of 1965. Section 33(4) of the Arbitration Act is peremptory: when an award is set aside and either party requests it, the dispute must be referred to a new tribunal constituted as directed by the court. Courts do not have discretion to substitute their own orders for arbitration awards that are set aside on the basis of excess of jurisdiction.

The Court made several observations beyond the ratio: (1) Lewis JA noted that had the appeal tribunal been entitled to rely on the Shill v Milner principle (which it was not), the facts on which that principle could be applied were not traversed in evidence - the issue of unanimous assent was not really, let alone fully, canvassed. (2) The Court observed that counsel for Hosmed conceded he did not expressly communicate to the witness or opposing counsel that he was raising the issue of unanimous assent during cross-examination. (3) The Court commented that presumably if both parties wished to refer a matter back to the same arbitrator or appeal tribunal, the court would be entitled to make such an order, though this was not determinative given section 33(4)'s requirements. (4) Lewis JA noted that Hosmed's success in having the matter remitted might turn out to be hollow if the new appeal tribunal refuses permission to reopen its case and amend pleadings. (5) The Court observed that the arbitration agreement remains binding on parties unless they agree to terminate it or it is set aside by court order, citing section 3 of the Arbitration Act.

This case is significant in South African arbitration law for clarifying: (1) The strict limits of an arbitrator's jurisdiction as defined by the arbitration agreement - arbitrators cannot decide issues not submitted to them, even where parties have consented to procedures mirroring those of courts. (2) The distinction between procedural powers (which can be conferred on arbitrators) and jurisdictional powers (which are limited to the submission agreement). (3) The importance of pleadings in defining the scope of arbitration proceedings, particularly where the arbitration agreement expressly limits issues to those pleaded. (4) The mandatory nature of section 33(4) of the Arbitration Act - courts must refer disputes to a new tribunal if either party requests it; courts cannot substitute their own orders. (5) The principle that unanimous assent (obviating the need for formal resolutions) is a confession and avoidance defense that must be specifically pleaded. (6) The application of the distinction in Lesotho Highlands between tribunals mistakenly exercising powers they have versus exercising powers they don't have - only the latter constitutes exceeding powers under section 33(1)(b). The case reinforces party autonomy in arbitration while maintaining judicial oversight through the power to set aside awards where tribunals exceed their agreed mandate.