OCA Testing and Certification South Africa (Pty) Ltd v KCEC Engineering and Construction (Pty) Ltd and Another

OCA Testing and Certification South Africa (Pty) Ltd (OCA Testing) entered into three separate written agreements in June 2017 to render advisory, technical and mechanical non-destructive test services to KCEC Engineering and Construction (Pty) Ltd (KCEC Engineering). Initially the relationship operated smoothly with invoices being paid. A dispute arose when KCEC Engineering refused to settle tax invoices totalling R2,603,729.44 comprising R142,002.46 from the first agreement, R2,355,768.05 from the second agreement, and R276,744.00 from the third agreement. The parties agreed to submit the dispute to arbitration before a retired judge, Justice N P Willis. KCEC Engineering admitted the services were rendered but disputed liability on grounds including late delivery, alleged overpayment of R1,961,770.24, and liquidated damages of R1,646,220.00. The arbitrator dismissed both OCA Testing's claim in its entirety and KCEC Engineering's counter-claim. The arbitrator found that OCA Testing was in breach of the first agreement by failing to deliver a Certificate of Conformity (CoC) timeously, and rejected KCEC Engineering's defences to the second and third agreements. However, the arbitrator failed to make a separate determination regarding the amounts claimed under the second and third agreements despite finding KCEC Engineering's defences to those agreements unsustainable.

• Whether the failure of an arbitrator to deal pertinently with and determine a substantial portion of a composite claim arising from two independent agreements constitutes a gross irregularity under section 33(1) of the Arbitration Act 42 of 1965
• Whether an arbitration award is susceptible to review and being set aside when the arbitrator fails to address the merits of component parts of a composite claim
• Whether section 33(1) of the Arbitration Act permits the setting aside of part of an award rather than the award in its entirety
• Whether an arbitrator who fails to engage with all issues before him commits a gross irregularity or misconduct
• Whether a new arbitrator should be appointed where there has been a fundamental irregularity in the arbitration proceedings

The appeal was upheld with no order as to costs. The order of the Gauteng Division of the High Court, Johannesburg was set aside. In its place, the Court ordered: (1) The application to set aside the award insofar as it relates to the amounts claimed in respect of the second and third agreements succeeds; (2) The dispute between the parties in relation to the residue of the claim arising from the second and third agreements is to be submitted to a new arbitrator to be agreed between the parties within 20 days, failing which to be appointed by the Arbitration Foundation of South Africa; (3) No order as to costs is made.

Where an arbitrator fails to determine a substantial portion of a composite claim comprising separate amounts arising from distinct agreements, and instead dismisses the entire claim based solely on findings relating to one agreement without addressing the merits of the remaining components, this constitutes a gross irregularity in the conduct of arbitration proceedings under section 33(1)(b) of the Arbitration Act 42 of 1965. Such failure prevents a fair trial of the issues and warrants setting aside the affected portion of the award and remittal to a new arbitrator. Section 33(1) permits the partial setting aside of an arbitration award where the irregularity affects only a discrete portion of the award, rather than requiring the entire award to be set aside. An arbitrator who identifies separate components of a claim but fails to engage with and determine all such components has not conducted the correct enquiry, distinguishing this situation from cases where an arbitrator conducts the correct enquiry but errs on facts or law.

The Court observed that the manner in which the re-hearing of the dispute is to be conducted is a matter entirely for determination by the new arbitrator, informed by submissions from the parties. The new arbitrator could potentially determine the remaining issues on the recorded evidence without relying on the findings of the previous arbitrator, particularly if assessment of witness demeanour is not essential for determining credibility, though these are matters within the remit of the new arbitrator. The Court reiterated the principle that where parties elect to resolve disputes through arbitration, courts must defer to that choice and not lightly intervene. The Court noted that where a litigant seeks costs against an adversary but the adversary has not opposed the application and elected to remain supine, the appropriate order is no order as to costs, as the applicant is not entitled to costs in the absence of opposition.

This case provides important guidance on the application of section 33(1) of the Arbitration Act 42 of 1965, particularly regarding what constitutes a gross irregularity in arbitration proceedings. The judgment clarifies that while arbitrators have 'the right to be wrong' on facts or law, a failure to address and determine all issues placed before them constitutes a gross irregularity that prevents a fair trial of the issues. The case confirms that section 33(1) permits partial setting aside of arbitration awards where only part of the award is affected by irregularity, following the principles established in Palabora Copper. This promotes efficiency by avoiding the need to set aside entire awards where only discrete portions are defective. The judgment reinforces the limited grounds for court intervention in arbitration while maintaining the principle that parties are entitled to have all issues they submit to arbitration properly determined. The case is significant for arbitration practitioners in understanding the scope of an arbitrator's duty to address all components of composite claims arising from multiple agreements, even where those claims are presented as a single globular amount.