South African Forestry Company Limited v York Timbers Limited

The parties had two agreements for the supply of timber over an extended period. The price was subject to revision and could be fixed by an arbitrator if the parties could not agree. An arbitration took place to fix the price for timber supplied during 1995. Both parties called expert witnesses during the arbitration but neither requested the arbitrator to make express provision for recovery of qualifying costs of expert witnesses. On 31 March 2000, the arbitrator awarded costs as follows: 'The [respondent] is to pay the costs of the arbitration, inclusive of all costs previously reserved by me.' On 1 August 2000, the appellant submitted a bill of costs including qualifying costs of expert witnesses. Three weeks later, the respondent objected that the award made no express provision for such costs. The appellant requested the respondent to agree to inclusion of the costs or remittal to the arbitrator, which the respondent declined. The appellant then launched an application seeking a declaration that the award included qualifying costs or, alternatively, remittal to the arbitrator for reconsideration.

• Whether an arbitrator's award of 'costs of the arbitration' includes qualifying costs of expert witnesses without an express award
• Whether an award of costs is a 'matter which was referred to arbitration' capable of being remitted to the arbitrator under section 32(2) of the Arbitration Act 42 of 1965
• Whether good cause was shown to remit the award to the arbitrator for reconsideration
• Whether good grounds existed to condone the delay in seeking remittal beyond the six-week period prescribed in section 32(2)

The appeal was upheld with costs. The order of the High Court (Van der Walt J) was set aside. The costs award in the arbitration was remitted to the arbitrator in terms of section 32(2) of the Arbitration Act 42 of 1965 to consider whether and to what extent an additional award should be made in respect of the qualifying costs of expert witnesses who testified on behalf of the appellant. The appellant was ordered to pay the costs of the application in the court a quo, including costs of opposition and costs of two counsel.

The binding legal principles established by this judgment are: (1) An arbitrator's general award of costs does not include the qualifying costs of expert witnesses unless such costs are specially awarded. The qualifying costs of expert witnesses require a specific order because it is a settled principle that such costs are not recoverable without special provision, reflecting the policy that litigants should not unilaterally increase costs against opponents by engaging expert evidence without judicial (or arbitral) oversight. (2) Under section 32(2) of the Arbitration Act 42 of 1965, an award of costs constitutes a 'matter which was referred to arbitration' and is therefore capable of being remitted to an arbitrator for reconsideration, notwithstanding that costs are ancillary to the principal dispute. (3) The test for remittal under section 32(2) is whether 'good cause' has been shown, which requires consideration of each case on its merits to achieve a just and equitable result, with particular regard to the relative prejudice to the parties and the principle of finality in arbitration. (4) Good cause for remittal may be established where: (a) the party seeking remittal would suffer material prejudice (loss of substantial costs recovery) if remittal is refused; (b) the other party would suffer no material prejudice beyond inconvenience if remittal is granted; (c) the remittal concerns a narrow ancillary issue not requiring reopening of substantive matters or further evidence; and (d) any procedural error was inadvertent and promptly addressed once discovered.

Nugent JA made several non-binding observations: (1) He noted that an arbitrator's discretion to award costs under section 35(1) must be exercised judicially upon consideration of all relevant facts and in accordance with recognized principles, and that failure to act in accordance with settled practice would constitute an irregularity (citing Kathrada v Arbitration Tribunal and Another 1975 (2) SA 673 (A)). (2) The Court observed that the rationale for requiring special orders for expert witness costs is to prevent litigants from unilaterally increasing costs against opponents, requiring instead that the tribunal's mind be directed to whether expert evidence was necessary in the particular case (citing Wocke v Williams 1922 TPD 78). (3) The Court commented that section 35(2) of the Arbitration Act serves a different purpose from section 32(2): the former applies where an arbitrator has failed to make a costs award or failed to give directions on scale, entitling either party as of right to request the arbitrator to make such an award or direction; whereas section 32(2) applies where an award has been made but requires reconsideration. (4) Nugent JA noted that while the appellant's attorney's error in overlooking the necessity for a special order was careless, this was not decisive in determining whether to grant remittal - the focus should be on relative prejudice. (5) The Court observed it was not unreasonable for the respondent to insist on a court application for remittal or to oppose it, justifying the costs order against the (successful) appellant.

This judgment is significant for South African arbitration law as it: (1) Confirms that qualifying costs of expert witnesses must be specially awarded by an arbitrator and are not automatically included in a general costs award - this upholds the well-established principle requiring judicial consideration before such costs are imposed on an opponent. (2) Establishes that an award of costs is a 'matter referred to arbitration' capable of remittal under section 32(2) of the Arbitration Act, rejecting a narrow interpretation that would limit remittal only to the principal issue in dispute. (3) Clarifies the test for remittal as 'good cause shown' rather than requiring 'compelling reasons', emphasizing a flexible, fact-specific approach that weighs relative prejudice to the parties. (4) Reinforces that technical procedural errors (such as failing to request a special costs order) should not defeat substantive entitlements where remittal can cure the defect without material prejudice to the other party. (5) Demonstrates the Court's willingness to prioritize substantive justice over strict finality in arbitration proceedings where the circumstances warrant it.