Total Support Management (Pty) Ltd and Another v Diversified Health Systems (South Africa) (Pty) Ltd and Another

On 25 October 1995, Interpharm and Slabbert (the second appellant) sold their pharmaceutical benefit management business to DHS (first respondent) for R49,439,500. The purchase price was payable in installments subject to various conditions set out in clause 10 of the agreement. DHS paid R2,439,500 on the closing date, a first payment of R13.5 million on 30 October 1996, and a second payment of R13.5 million on 21 January 1997. A dispute arose concerning TSM's (the first appellant, to whom Interpharm had ceded its claims) liability for payment of portions of the purchase price and interest. The agreement contained an arbitration clause (clause 30) which provided that the arbitrator's determination would be final and not subject to appeal unless the terms of submission provided otherwise. The parties could not agree on an arbitrator, so Mr P E B Reynolds (second respondent), a senior attorney of 40 years standing, was nominated. The arbitration was conducted in September 1999. Five witnesses testified for the appellants; DHS closed its case without leading evidence. The arbitrator delivered his judgment on 21 October 1999, dismissing both the appellants' claims and DHS's counterclaim, with adverse costs orders. The appellants launched an application to set aside the award under section 33(1) of the Arbitration Act 42 of 1965.

• Whether the arbitrator misconducted himself in relation to his duties as arbitrator under section 33(1)(a) of the Arbitration Act 42 of 1965
• Whether there was a gross irregularity in the conduct of the arbitration proceedings under section 33(1)(b) of the Arbitration Act
• Whether mistakes of law or fact by an arbitrator constitute misconduct justifying setting aside an award
• Whether section 33(1) of the Constitution (administrative justice) applies to consensual arbitration
• Whether the arbitrator improperly delegated his decision-making function to his assistant
• What constitutes misconduct by an arbitrator warranting the setting aside of an arbitral award

The appeal was dismissed with costs, including costs of two counsel for both respondents. The appellants were additionally ordered to pay the second respondent's costs of the hearing on 25 February 2002 on an attorney and client scale as a punitive measure for persisting in groundless allegations of impropriety against the arbitrator.

1. Misconduct by an arbitrator under section 33(1)(a) of the Arbitration Act 42 of 1965 requires proof of wrongful or improper conduct, dishonesty, mala fides, partiality or moral turpitude - not merely bona fide mistakes of law or fact, even if gross or manifest. 2. Section 33(1) of the Constitution (administrative justice) does not apply to consensual arbitration because arbitration arises from the exercise of private rather than public powers and the arbitrator's function is judicial, not administrative in nature. 3. An arbitrator may properly utilize an assistant for research, discussion of merits, and preparation of draft awards, provided the arbitrator does not abdicate his responsibilities and exercises his own independent judgment in deciding the issues. The question is whether the arbitrator exercised his own judgment in deciding the issues. 4. A gross irregularity in the conduct of arbitration proceedings under section 33(1)(b) requires more than procedural errors within the scope of agreed or implied functions of an assistant.

1. The position may be different regarding the application of section 33(1) of the Constitution in the case of statutorily imposed (compulsory) as opposed to consensual arbitrations, and the decision in Veldspun may merit reconsideration in that context. 2. It is a moot point whether section 34 of the Constitution (right to fair public hearing) applies to consensual or private arbitrations, particularly given that parties may agree to exclude public hearings. This question was not fully argued and was left open. 3. Even if the fairness requirement of section 34 applies to private arbitrations, parties may define what is fair by agreement, and the requirement is satisfied where parties agree to forego a right of appeal and accept well-established principles governing arbitration. 4. When selecting an arbitrator, parties should take care to reach consensus on what precise functions any assistant may perform to avoid later disputes. Failing agreement, an assistant should not perform tasks that encroach on the normal functions of an arbitrator. 5. The existence of a legal presumption against payment of money not owing (as suggested in Recsey v Reiche 1927 AD 554) and its application in matters such as this is open to doubt.

This case is significant in South African arbitration law as it comprehensively confirms and applies the strict test for setting aside arbitral awards on grounds of misconduct. It reaffirms that consensual arbitration awards can only be set aside on very narrow grounds - proving dishonesty, mala fides, partiality or moral turpitude, not merely errors of law or fact. The judgment clarifies that section 33(1) of the Constitution (administrative justice) does not apply to consensual arbitration, which is a form of private adjudication. It provides important guidance on when an arbitrator may properly use an assistant and what constitutes improper delegation of decision-making functions. The case reinforces the principle of finality of arbitral awards, rooted in Roman-Dutch law and firmly established since 1828, which is essential to the efficiency and effectiveness of arbitration as an alternative dispute resolution mechanism.