State Information Technology Agency SOC Limited v ELCB Information Services (Pty) Ltd & another

SITA (the appellant) and ELCB Information Services (the first respondent) concluded two agreements for the provision of information technology services. The first agreement dated 12 March 2006 was for developing and implementing an information management system for SASSA, worth R220 million. The second agreement dated 11 January 2007 was for a records management system for the Eastern Cape Department of Health, worth R20.1 million. Both parties substantially performed their obligations, with SITA making substantial payments and ELCB rendering the contracted services. A dispute arose regarding the balance of payments owed. The matter was referred to arbitration under clause 25 of the first agreement. At the pre-arbitration meeting on 1 October 2013, both parties agreed on procedural matters. SITA failed to file its statement of defence as agreed. When the arbitration commenced on 3 March 2014, SITA brought an application challenging the constitutional validity of the agreements on procurement grounds - a point never previously raised in the eight years since the agreements were concluded. The arbitrator dismissed this application and SITA's legal representatives left the proceedings. The arbitrator proceeded to hear evidence from ELCB and made an award on 31 March 2014 in favour of ELCB. SITA then brought a review application to set aside the award on grounds of gross irregularities, which was dismissed by the Gauteng Division High Court (Mabuse J).

• Whether the arbitrator committed gross irregularities in the conduct of the arbitration proceedings justifying review and setting aside of the award under section 33(1)(b) of the Arbitration Act 42 of 1965
• Whether the appellant was excluded from participating in the arbitration proceedings
• Whether the arbitrator exceeded his jurisdiction by awarding on the second agreement which SITA alleged was unsigned
• Whether the arbitrator exceeded his powers in awarding interest from 11 March 2013
• Whether the arbitrator failed to properly apply his mind to the evidence
• Whether the arbitrator's delay in providing written reasons constituted misconduct or a gross irregularity

The appeal was dismissed with costs.

The binding legal principles established are: (1) Under section 33(1)(b) of the Arbitration Act 42 of 1965, gross irregularities must be proven to justify setting aside an arbitration award - mere disagreement with the outcome is insufficient. (2) An arbitrator acts within his powers when proceeding in the absence of a party who has been given ample opportunity to cure default and chooses to leave the proceedings voluntarily. (3) Review of arbitration awards concerns the manner in which a decision was reached, not whether the decision was right or wrong - an arbitrator 'has the right to be wrong' on the merits. (4) Neither the Arbitration Act nor common law requires an arbitrator to provide written reasons for an award; delay in providing reasons does not per se constitute gross irregularity or misconduct where reasonable explanations exist and no prejudice is shown. (5) A party who substantially performs under an agreement for many years and makes payments cannot successfully dispute the existence of that agreement based on bare denial lacking supporting evidence from witnesses with direct knowledge.

The court made strong obiter observations criticizing SITA's conduct of the litigation. Shongwe AP stated: 'It is high time that officials of state organs be held personally liable for unnecessarily and or negligently incurring costs. Had this issue been pertinently raised, this court would not have hesitated to order the functionaries personally to bear the costs of both the arbitration and the litigation.' This reflects judicial concern about wasteful litigation by organs of state using taxpayers' money, particularly where a constitutional invalidity challenge was raised eight years after contracts worth millions were concluded and substantially performed. The court expressed 'disquiet in the manner the appellant handled the whole litigation process' including failing to file defences, defaulting repeatedly, walking out of arbitration proceedings, and then seeking to review the award. While these comments did not form part of the ratio (as the issue was not specifically raised before the court), they signal the judiciary's willingness to impose personal costs orders on state functionaries who engage in negligent or vexatious litigation conduct.

This case is significant in South African arbitration law as it clarifies the scope of gross irregularities under section 33(1)(b) of the Arbitration Act 42 of 1965. It confirms that: (1) an arbitrator has wide discretion to proceed in the absence of a defaulting party who fails to cure defaults; (2) review of arbitration awards is concerned with procedural irregularities, not the correctness of the decision on the merits; (3) neither the Arbitration Act nor common law requires arbitrators to provide written reasons for awards; (4) delay in providing written reasons, even where agreed, does not per se constitute gross irregularity or misconduct, particularly where reasonable explanations are provided; (5) parties who voluntarily absent themselves from proceedings after adverse rulings cannot claim they were excluded. The judgment also serves as a strong judicial rebuke to organs of state that conduct litigation in a dilatory and wasteful manner with public funds, with the court indicating willingness to impose personal costs orders on functionaries in appropriate cases.