Neil Harvey & Associates (Pty) Ltd v Medscheme Holdings (Pty) Ltd

NHA was the claimant in arbitration proceedings against Medscheme Holdings and its officers. The arbitration concerned allegations that Medscheme had copied NHA's software source code and misappropriated confidential information while having access to NHA's software. An arbitration agreement was concluded on 23 October 2007. During the arbitration process, NHA served subpoenas on ITQ Business Solutions, the main developer of Medscheme's software. NHA and ITQ subsequently concluded a Confidentiality Agreement on 12 October 2008 providing for disclosure of documents and conferring jurisdiction on the arbitrator (Adv Beckerling) to settle disputes arising from that agreement. On 26 February 2009, a meeting was held between the arbitrator, NHA's legal team and ITQ representatives to resolve disputes about ITQ's compliance with the Confidentiality Agreement. The respondents were not notified of or present at this meeting. The arbitrator made no rulings or findings at the meeting. The respondents applied to the South Gauteng High Court for removal of the arbitrator under section 13(2)(a) of the Arbitration Act 42 of 1965. The court a quo (Makgoka J) granted the removal order. NHA appealed to the Supreme Court of Appeal.

• Whether a gross irregularity occurred when the arbitrator held a meeting with one party (NHA) and a third party (ITQ) without the presence of the respondents in the main arbitration
• Whether there was a reasonable suspicion of bias on the part of the arbitrator arising from his acceptance of appointment to resolve disputes under a separate agreement (the Confidentiality Agreement) between NHA and ITQ
• What constitutes 'good cause' for removal of an arbitrator under section 13(2)(a) of the Arbitration Act 42 of 1965
• The scope and application of the rule that nothing may be done 'inaudita altera parte' in arbitration proceedings
• Whether the arbitrator's conduct at the meeting of 26 February 2009 warranted removal from office

The appeal was allowed with costs, including costs of two counsel. The order of the court a quo was set aside and substituted with an order dismissing the application for removal of the arbitrator with costs, including costs of two counsel.

The binding legal principles established are: (1) The rule that arbitration proceedings must not be conducted 'inaudita altera parte' does not prohibit all communications or interactions in the absence of a party, but applies where evidence is received, merits are considered, or there is a realistic possibility that a party's rights or interests are adversely affected. (2) For removal of an arbitrator under section 13(2)(a) of the Arbitration Act on grounds of irregularity, there must be actual prejudice or a realistic possibility of prejudice to a party's rights or interests, not merely a procedural defect. (3) The test for reasonable apprehension of bias in arbitration is whether a reasonable, objective and informed person would, on the correct facts as they emerged, reasonably apprehend that the arbitrator has not brought or will not bring an impartial mind to the adjudication. This test must be applied ex post facto with the benefit of hindsight based on what actually occurred. (4) Where an arbitrator acts in good faith to protect the interests of absent parties and makes no rulings or findings that could affect their rights, and was under a bona fide but mistaken impression that the parties were aware of the meeting, this does not constitute grounds for removal on the basis of bias or irregularity.

The Court made several obiter observations: (1) NHA should not have stipulated or agreed to a procedure whereby disputes between it and ITQ under the Confidentiality Agreement would be referred to the same arbitrator in the absence of the respondents, as the issues were so closely related to the main arbitration. NHA should have requested the arbitrator to convene a hearing on notice to the respondents. (2) The respondents and their attorney were not as frank and forthcoming as they could have been regarding their knowledge of the meeting, and a higher degree of cooperation could have been expected which might have obviated the proceedings, but this did not amount to deliberate misconduct justifying a punitive costs order. (3) Regarding the rule 10(3)(g) limiting heads of argument to 40 pages, the Court noted that NHA's initial heads exceeded 180 pages but did not exclude costs of the first heads as the taxing master does not allow a separate fee for heads of argument. (4) While the employment of three counsel might be justified for the arbitration itself, only two counsel were necessary for the appeal given the volume of the record and the issues involved.

This case is significant in South African arbitration law for: (1) Clarifying the scope of the rule against proceeding 'inaudita altera parte' in arbitration - the rule is not absolute but must be applied purposively to protect parties' substantive rights and interests. (2) Establishing that removal of an arbitrator under section 13(2)(a) of the Arbitration Act requires actual prejudice or a realistic possibility of prejudice, not merely procedural irregularity. (3) Confirming the test for reasonable apprehension of bias in arbitration proceedings and emphasizing that it must be applied ex post facto based on the true facts as they emerged. (4) Reinforcing the policy consideration that courts should not be overly interventionist in arbitration proceedings, lest the benefits of private dispute resolution be undermined. (5) Providing guidance on when communications between an arbitrator and one party or witnesses in the absence of another party will constitute grounds for removal. The judgment promotes the finality and efficiency of arbitration while protecting fundamental procedural fairness.