Rabinowitz v Levy and Others

Gary Rabinowitz (the seller) sold shares in SDK Agencies (Pty) Ltd to Colin Levy and Daniel Mpande (the buyers) in terms of a sale agreement dated 30 June 2017. The purchase price was R18 million plus interest, plus the aggregate value of stock and adjustments. The stock value at signature was reflected as R6,197,211.14, but the audited financial statements showed stock of only R2,239,002.00. Disputes arose and were referred to arbitration before Hilton Epstein SC (the arbitrator) as agreed in the sale agreement. The seller claimed payment of R15,064,754.24 as the balance of the purchase price. The buyers defended on grounds of fraud (primary defence) and alternatively raised various counterclaims including: breach of accounting warranties (the Clicks claim for R34,736.06), failure to deliver stock value as represented (the stock claim for R3,997,211.14), and missing assets claims. After evidence and argument concluded, the parties' counsel sent an email dated 28 June 2019 to the arbitrator addressing certain matters including agreeing that if counterclaims were upheld (other than where the amount was clear), a further hearing on remedy would be necessary. The arbitrator issued his award on 10 July 2019 dismissing the fraud allegations, upholding the Clicks claim, finding the stock claim partially proved (reducing purchase price by R3,958,209.14), and dismissing the missing assets claim.

• Whether the arbitrator was legally obliged by the email from the parties' counsel to hold a further hearing before determining the quantum of the stock claim
• Whether the arbitrator's interpretation and application of the email was open to review
• Whether the arbitrator's failure to hold a further hearing before quantifying the stock claim constituted a gross irregularity under section 33(1)(b) of the Arbitration Act 42 of 1965
• Whether the arbitrator exceeded his powers/jurisdiction by allegedly deciding the stock claim on the basis of innocent misrepresentation when this was not pleaded
• Whether the arbitrator failed to adjudicate the missing assets counterclaim
• What constitutes a 'gross irregularity' in arbitration proceedings justifying review under section 33(1)(b) of the Arbitration Act

The appeal was upheld. The order of the full court dated 25 July 2022 was set aside and replaced with an order dismissing the appeal with costs including costs of the application for leave to appeal to the full court, such costs to be paid by the first, second and third appellants (the buyers and surety) jointly and severally. The first, second and third respondents were ordered to pay the appellant's costs of the appeal to the Supreme Court of Appeal jointly and severally.

The binding legal principles established are: (1) Section 33 of the Arbitration Act 42 of 1965 is exhaustive of grounds for review of consensual arbitration awards. Material errors in an award, even if gross, are not reviewable - otherwise the distinction between appeals and reviews would be eroded. (2) A 'gross irregularity' under section 33(1)(b) must relate to the conduct of the arbitration proceedings, not the result or outcome. Not every irregularity suffices - it must be of such serious nature that the aggrieved party did not have their case fully and fairly determined. (3) Where parties submit to arbitration, they submit to a process they intend should be fair, but courts must construe review grounds strictly in relation to private arbitration, being respectful of parties' intentions regarding procedure and mindful of arbitration's purposes of fast and cost-effective dispute resolution. (4) An arbitrator's interpretation of the scope of their mandate and procedural obligations, including interpretation of agreements between the parties regarding procedure, is for the arbitrator to determine and is final even if wrong, provided it is not so unfair or unreasonable as to constitute exceeding mandate. (5) Whether quantum of a claim is clear requiring no further evidence is a matter for the arbitrator to determine based on the evidence and is not reviewable even if wrong, unless the determination results in such unfairness as to constitute a gross irregularity. (6) An arbitrator exceeds jurisdiction under section 33(1)(b) only where purporting to exercise a power they did not have. An erroneous exercise of a power the arbitrator has does not ground review. Deciding a matter on a different legal basis than characterized in pleadings does not necessarily exceed jurisdiction if the substance of what was pleaded is addressed.

The Court made several non-binding observations: (1) The Court cited with approval Voet's observation that arbitration is resorted to for avoiding the 'heavy expenses of lawsuits, the din of legal proceedings, their harassing labours and pernicious delays' and Brand's caution that these advantages are diminished if courts adopt an over-keen approach to intervention. (2) The Court noted that consensual arbitrations, unlike statutory arbitrations, do not fall within 'administrative action' and accordingly section 33 of the Constitution and PAJA do not apply, excluding reviews on grounds of irrationality. (3) The Court accepted for purposes of argument, without deciding, that if an arbitrator's interpretation was so unfair or unreasonable as to not be sustainable on any basis, the arbitrator might have exceeded their mandate. (4) The Court observed that if the intention was that an arbitrator's discretion and wide powers had become fettered by subsequent agreement, the original arbitration agreement should be amended in the manner contemplated for its amendment (i.e., in writing signed by parties). (5) The Court noted that arbitrators should be free to adopt such procedures as they regard appropriate unless the arbitral agreement precludes them from doing so, and should not be confined in a 'straitjacket of legal formalism'. (6) The Court commented that courts generally adopt 'a rather generous approach' to pleadings in arbitration. (7) The Court observed that losing parties in arbitration mostly feel the arbitrator's decision is wrong and are encouraged to take chances with the court if courts are interventionist, but if arbitration becomes merely a prelude to judicial review, its essential virtue is lost.

This case is significant in South African arbitration law as it reinforces the limited grounds for judicial review of consensual arbitration awards under section 33(1)(b) of the Arbitration Act 42 of 1965. The judgment emphasizes that: (1) Courts must adopt a strict approach when reviewing private arbitration awards to preserve the advantages of arbitration (speed, cost-effectiveness, finality); (2) Material errors of law or fact, however gross, do not constitute reviewable irregularities - the distinction between appeals and reviews must be maintained; (3) A 'gross irregularity' must relate to the conduct of proceedings, not the outcome, and must be of such serious nature that it prevented a party from having their case fully and fairly determined; (4) Arbitrators have wide discretion in conducting proceedings and courts should be respectful of procedural choices made; (5) An arbitrator's interpretation of documents (including agreements about procedure) is final even if wrong, unless so unfair or unreasonable as to exceed mandate; (6) Courts will adopt a generous approach to pleadings in arbitration and arbitrators do not necessarily exceed powers by deciding matters in a manner different from how they were characterized, provided the substance of what was pleaded is addressed; (7) The judgment applies constitutional values requiring fair procedures in arbitration while cautioning against an over-interventionist approach that would defeat arbitration's purposes. The case provides important guidance on when courts will and will not interfere with arbitration awards.