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South Africa: Supreme Court of Appeal |
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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number: 26/05
Reportable
In the matter between:
TELCORDIA TECHNOLOGIES INC APPELLANT
and
TELKOM SA LTD RESPONDENT
CORAM : HARMS, CONRADIE, CLOETE, LEWIS AND PONNAN JJA
HEARD : 30 & 31 OCTOBER 2006
DELIVERED : 22 NOVEMBER 2006
Summary: Arbitration – review of award – grounds for setting aside
Neutral Citation: This judgment may be referred to as Telcordia Technologies Inc v Telkom SA [2006] 139 SCA (RSA).
Order: The court order appears at para 158.
J U D G M E N T
HARMS JA/
HARMS JA:
A. Introduction
[1] This appeal relates to the review of consensual international commercial arbitration proceedings. The review is under s 33(1) of the Arbitration Act 42 of 1965. The court below, per de Villiers J, upheld an application brought by Telkom SA Ltd for the review of an arbitral award. It set aside an interim award (which was final in effect) in favour of the appellant, Telcordia Technologies Inc, a Delaware corporation. The arbitrator was Mr Anthony Boswood QC, a London barrister. Telkom is a local company and is the present respondent. The high court not only set aside the award; in addition it removed the arbitrator and appointed three new arbitrators, retired South African judges, in his stead.
[2] In spite of the fact that the argument before the high court lasted six weeks, and the hearing of the application for leave to appeal another three days, the court dismissed the latter application out of hand. This Court, on petition, granted the necessary leave. We uphold the appeal for the reasons that follow but because of the nature of the submissions this judgment contains some repetition.
[3] The high court in essence held that the arbitrator had committed gross irregularities in the proceedings in the course of interpreting a contract between the parties. The alleged irregularities related in summary to the nature of the evidence that the arbitrator took into account; and whether he had failed to appreciate the import of South African law in relation to both contractual interpretation and to the amendment of written contracts. Matters not decided below but raised as grounds of review were, broadly, whether the arbitrator had exceeded the bounds of the terms of reference; whether he had made findings without evidence; whether he had failed to give Telkom the opportunity to lead further evidence; and whether he had erred in refusing to state a case for an opinion by the court in terms of s 20 of the Act.
[4] The high court in setting aside the award disregarded the principle of party autonomy in arbitration proceedings1 and failed to give due deference to an arbitral award, something our courts have consistently done since the early part of the 19th Century.2 This approach is not peculiar to us; it is indeed part of a worldwide tradition. Canadian law, for instance, ‘dictates a high degree of deference for decisions . . . for awards of consensual arbitration tribunals in particular.’3 And the ‘concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes’4 have given rise in other jurisdictions to the adoption of ‘a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards’. 5
[5] Blackmum J made these pointed remarks in this regard:6
‘As international trade has expanded in recent decades, so too has the use of international arbitration to resolve disputes arising in the course of that trade. The controversies that international arbitral institutions are called upon to resolve have increased in diversity as well as in complexity. Yet the potential of these tribunals for efficient disposition of legal disagreements arising from commercial relations has not yet been tested. If they are to take a central place in the international legal order, national courts will need to “shake off the old judicial hostility to arbitration”, Kulukundis Shipping Co v Amtorg Trading Corp 126 F2D 978, 985 (CA2 1942), and also their customary and understandable unwillingness to cede jurisdiction of a claim arising under domestic law to a foreign or transnational tribunal. To this extent, at least, it will be necessary for national courts to subordinate domestic notions of arbitrability to the international policy favouring commercial arbitration.’
[6] The structure of the remainder of this judgment is as follows:
B. The arbitration clause (para 7-10).
C. The non-variation clause (para 11-13).
D. The structure of the Integrated Agreement and Telcordia’s delivery obligations (para 14-22).
E. The dispute (para 23-24).
F. Telcordia’s claims (para 25-27).
G. The second amendment (para 28).
H. The May issues (para 29-30).
I. The arbitrator’s award (para (31).
J. The grounds for review (para 32-43).
K. The relationship between the Constitution and the Arbitration Act (para 44-51).
L. The meaning of s 33(1)(b): ‘gross irregularity’ and ‘exceeding powers’ (para 52-79).
M. The nature of the inquiry, the duties of the arbitrator, and the scope of his powers (para 80-89).
N. How did the arbitrator understand his duties? (para 90-93).
O. The findings by the high court relating to the arbitrator’s misconceptions about his duties, and exceeding his powers (para 94-101).
P. The primary question and the Shifren doctrine (para 102-116).
Q. The sign-off requirement (para 117-122).
R. The disclaimers (para 123-126).
S. Testing for compliance (para 127-131).
T. The London agreement (para 132-142).
U. The section 20 issue (para 143-156).
V. Conclusion (para 157).
W. The order (para 158).
Repudiation is dealt with in the accompanying judgment of Cloete JA.
B. The Arbitration Clause
[7] The agreement which formed the subject matter of the arbitration is known as the Integrated Agreement and was concluded on 24 June 1999. It contained an arbitration clause which was independent of the validity of the Integrated Agreement. The clause provided that ‘all disputes between the parties that may arise’ had to be determined by an arbitrator. This included ‘disputes related to interpretation’ of the agreement, as well as ‘disputes of a legal nature’. It further stated that the award would be final and binding, and the parties undertook to give effect to the award.
[8] The arbitration had to take place before a single arbitrator in terms of the rules of the International Chamber of Commerce (the ICC). Under these rules, a sole arbitrator has to be of a nationality other than those of the parties. No provision was made for an arbitral appeal board. Mr Boswood was appointed accordingly.
[9] The terms of reference cited and incorporated the arbitral clause. In addition, they provided that the issues that had to be decided were those that arose from the claims and counterclaims as set out in the pleadings. Importantly, they contained a provision to the effect that the arbitrator did not necessarily have to decide all the issues raised in the pleadings if he deemed it unnecessary or inappropriate. On the other hand, he could also decide ‘any further issues of fact or law’ which he, in his discretion, deemed ‘necessary or appropriate’. And he was entitled to decide the issues ‘in any manner or order he deems appropriate’.
[10] Both the proper law and the law governing the arbitration proceedings were, in terms of the Integrated Agreement, South African law, and our courts have jurisdiction over the arbitration and the review proceedings.
C. The Non-Variation Clause
[11] One of the principal complaints of Telkom was that the arbitrator did not understand and did not apply our law dealing with variations of written contracts. The Integrated Agreement contained a non-variation clause – the contract could only have been amended by means of a written agreement signed by certain duly authorised persons – as well as a provision preventing either party from relying on waiver or estoppel. The exact terms of the non-variation clause are of little consequence because it is common cause that the Integrated Agreement was not amended according to its terms.
[12] The effect of a non-variation clause has been the subject of two judgments of this Court, namely Shifren7 and, latterly, Brisley v Drotsky.8 For the sake of convenience I intend to refer to the principles as the Shifren doctrine. The arbitrator, although not formally schooled in South African law, understood the principles perfectly well and he summarised them in these terms: A non-variation clause is in principle valid; it takes effect so as effectively to entrench both itself and all the other provisions of the contract against oral variation; courts do not have a general discretion to ignore it in favour of an oral amendment on the ground of some over-arching notion of bona fides; and the principle does not create an unreasonable straitjacket because the general principles of the law of contract still apply, and these may release a party from its workings. One of these would, for instance, be the rule that a party may not approbate and reprobate. This would mean, as Telkom correctly accepted during argument, that a party may not rely on a non-compliant variation (for instance, in its pleadings) and subsequently invoke the non-variation term in order to avoid the effect of the amendment.
[13] To this the arbitrator added:9
‘My own provisional view, expressed with all due diffidence, would be that the position may be very different in a case where the evidence shows that A and B have orally agreed on a mode of performance by B of his contractual obligation to A different from that originally specified in the contract, where that different mode of performance was agreed upon for the mutual benefit of both parties, and where B has, to the knowledge and with the acquiescence of A, done the work and/or laid out the necessary resources in pursuance of that different mode of performance. In such a case it would be, to say the least, most surprising if the law was that A, when presented with the results of B’s substituted performance, could simply refuse to accept it on the ground that the agreement to such substituted performance was not concluded in writing or otherwise memorialized in accordance with the requirements of a No Oral Variation Clause. I was shown a number of authorities which strongly suggest that such is, indeed, not the law.’
He relied in this regard on the judgment in Van der Walt v Minnaar10 which, it would appear to me, provides some support for his view. The effect of Van der Walt v Minnaar is, quite sensibly, that the acceptance of substituted performance does not amount to a variation of the contract.
D. The Structure of the Integrated Agreement and Telcordia’s Delivery Obligations
[14] Telkom provides mainly two types of telecommunication services: voice and non-voice. Voice services are services and network components that provide customers with the ability to transmit voice conversations over a telecommunication network. Non-voice services enable customers to transmit data. The main object of the Integrated Agreement was to provide Telkom with a state-of-the-art automated telecommunication system driven by 14 different highly specialized software products. These had to be developed and individualized to satisfy Telkom’s specific operational requirements. They had to provide Telkom with the capability of managing both Voice and Non-Voice Flow-Thru service activation and provide quality assurance of the activated services. Flow-Thru was defined as an end to end process flow. The information had to flow between functions, organisation parts, and groups of systems.
[15] These software systems had to be delivered in phases called releases. For present purposes two releases are important: Telcordia had to ship (a) the Voice Software on 30 June 2000; and (b) the Non-Voice Software on 29 December 2000. The total contract value of the Voice software was some US$ 51,8m and US$ 34,8m for the Non-Voice software.
[16] Both shipments of software had to be preceded by the shipment (six months earlier) of the ‘specifications’ of the software to be delivered. These ‘Software Feature Specifications (FDD)’ were defined in the Integrated Agreement. It is important to note at this juncture that the arbitrator found as a fact that specifications – called FSDs or Feature Specification Descriptions – were mutually developed and agreed between Telcordia and Telkom, and that Telkom had paid for them some US$ 5,1m and US$ 3,48m respectively on the agreed dates.
[17] The essence of the dispute the arbitrator was called on to decide at the proceedings that gave rise to the interim award related to the benchmark of Telcordia’s software Voice (‘06/00’) and the Non-Voice (‘12/00’) delivery obligation. This depended on an interpretation of the Integrated Agreement.
[18] Thus far I may have created the impression that the Integrated Agreement was a contract that could be read and understood from the first page to the last. Nothing could be further from reality. But first some background. In October 1998, Telkom issued to prospective bidders a Request for Bid, setting out its requirements. Telcordia responded by means of Statements of Compliance (SOC), contained in 14 binders, stating the extent to which it could or would comply with the Request for Bid. The updated Request for Bid and SOCs were incorporated into the Integrated Agreement as ‘exhibits’. (The Integrated Agreement had various parts, all except the first (which was also called the Integrated Agreement) referred to as exhibits; and all had different contractual rankings.)
[19] The Project Plan (exhibit F) ranked first. The Project Plan was defined as the detailed plan and schedule for the delivery of the software systems. It was to include the delivery milestones for the software and the dates on which it had to be delivered; and it was to identify the capability of the software (the ‘specific functionality (and features) to be included in each release of the Licenced Software delivered by Telcordia on a particular delivery milestone’). The Project Plan could have been amended by means of the ‘scope change provisions’.11
[20] The Project Plan consisted of a number of ‘annexures’. Annexure A was the Flow-Thru WBS (work breakdown structure) Project Schedule for the execution of the various tasks required. Annexure B was a bar chart containing a very brief summary of some of the information set out in Annexure A. For instance, in relation to the Non-Voice release it indicated the shipping date and then gave the periods for installation, testing, live pilot and production/rollout. This particular bar contained a caveat which is dealt with later. Annexure D contained a payment schedule while Annexure E set out certain general assumptions as well as Telkom’s responsibilities, and some conditions precedent.
[21] Exhibit C, ranking lower than the Project Plan, dealt with the software ‘specifications’ and defined this term. In particular it stated in clause 9.2 that the software had to be delivered in compliance with the conditions of the Integrated Agreement and that the Project Plan would be the operative document for Telcordia’s delivery obligations.12
[22] I have not quoted the text of the other relevant contractual provisions because they have been set out in great detail by both the arbitrator and the high court and because this judgment is not concerned with the interpretation of the Integrated Agreement but with the question whether the arbitrator committed reviewable irregularities.
E. The Dispute
[23] I have already alluded to the dispute between the parties concerning Telcordia’s delivery obligations. Telcordia, in short, contended that it had to deliver software that complied with the preceding specifications (the FSDs), which had been mutually developed and agreed upon, and had been paid for by Telkom. Telkom, on the other hand, argued that the Project Plan had precedence over Exhibit C, which contained the definition of ‘specifications’. The Project Plan, it said, in terms of the Integrated Agreement had to identify the specific functionality and features of each release. This meant that these must be sought in the Project Plan, especially the WBS read with the bar chart. In any event, clause 9.2.2 required that the software should be in accordance with the Project Plan. Because the Project Plan was not specific and did not detail the required functionalities and features, the Integrated Agreement by necessary implication required that all the features and functionalities necessary for purposes of providing the 06/00 Voice and 12/00 Non Voice Flow-Thru had to be included in the respective releases.
[24] Telcordia justified its 06/00 delivery and its tender to deliver the 12/00 software on its interpretation of its delivery obligations. Telkom, relying on its contrary interpretation, disputed that Telcordia had duly performed in relation to the 06/00 release, which justified its refusal to pay the balance outstanding on that release; and, in addition, Telkom rejected Telcordia’s tender of the 12/00 software. Telcordia therefore sent Telkom a notice, requiring it to cure its alleged repudiation. Telkom refused to do so and Telcordia accordingly sent a notice of cancellation. Telkom, in turn, purported to cancel on the ground that Telcordia’s delivery of the 06/00 and its tender of the 12/00 software were not in accordance with its obligations under the Integrated Agreement; and that Telcordia’s attempted cancellation amounted to a repudiation, which Telkom accepted. Many of the claims and counterclaims were therefore dependent on the correct interpretation of the Integrated Agreement in relation to the capability of the software that had to be delivered.
F. Telcordia’s Claims
[25] Some of Telcordia’s claims need special mention because of the fact that they play a role in this judgment. Claim B was in respect of the balance owing in respect of the 06/00 release. Telkom had paid 60 per cent of the amount due on delivery but had failed to pay the balance. Telcordia relied in the main on the Integrated Agreement for its entitlement to be paid. In the alternative it relied on the so-called London agreement, something I deal with in part T of this judgment. This agreement was concluded orally in London on 12 October 2000. Telkom undertook to pay the 60 per cent immediately (which it did) and the balance with the 12/00 release. All this is common cause. What is not is Telkom’s reliance on conditions precedent for payment of the 40 per cent.
[26] Claim C was for the moneys due as a result of the 12/00 release, of which Telkom refused to accept delivery. These moneys were claimed on either a contractual basis or as damages.
[27] Claim G dealt with Out of Scope services (extras). As mentioned, there is a provision dealing with changes to the Project Plan by means of extras. Telkom’s plea to this claim included a reliance on the Shifren principle. Significantly, for what follows, it was not raised in connection with any other claim, including claims B and C.
G. The Second Amendment
[28] Telcordia’s so-called second amendment was an amendment to its plea to Telkom’s counterclaim. There it raised an alternative, based on the supposition that Telkom’s primary interpretation would have been upheld and Telcordia’s interpretation rejected. In this Telcordia relied in relation to the Non-Voice software on a term of the moratorium agreement, which had been entered into ‘on or about 1 April 2000’, and also on an oral or implied agreement somewhat later concerning the Voice software. Telkom informed the arbitrator that it would rely on Shifren and Telcordia stated that it would raise estoppel. These issues were not expressed in the pleadings because the ICC rules do not permit further pleadings but they were nevertheless issues in the arbitration and were articulated in para 3 of the May issues.
H. The May Issues
[29] The parties agreed during the course of the arbitration to a separate adjudication of some aspects of the case. The issues thus formulated were referred to as the May issues. The outcome would have disposed of much of the case: indeed, Telkom’s view was that a ruling in its favour would have disposed of all Telcordia’s claims. As it turned out, the ruling was in Telcordia’s favour and a dismissal of all Telkom’s claims followed.
[30] The May issues were thus formulated (para 2.1 reflecting Telcordia’s interpretation of its contractual obligations while para 2.2 reflected Telkom’s understanding):13
1. On a proper construction of the Integrated Agreement (IA) dated 24 June 1999, having regard to the terms thereof and all admissible evidence in relation thereto:
1.1 What is the contractual baseline for determining the specific features and functionality of the software to be delivered by Telcordia to Telkom in each of the various software releases provided for in the IA;
1.2 How are the contractual delivery dates for particular software features and functionality to be determined?
2. In particular, on a proper construction of the IA, having regard to the terms thereof and all admissible evidence in relation thereto, was Telcordia required:
2.1 to deliver software in June and December 2000 which complied with the Feature Specification Descriptions (FSDs) in respect of each of those software releases (as contended by Telcordia); or
2.2 to deliver all features and functionality necessary for purposes of providing Voice Flow-Thru by way of the June 2000 software releases and all features and functionality necessary for purposes of providing Non-Voice Flow-Thru by way of the December 2000 software release (as contended by Telkom)?
3 If Telcordia was required in terms of the IA to deliver all features and functionality necessary for purposes of providing Voice Flow-Thru by way of the June 2000 software release and all features and functionality necessary for purposes of providing Non-Voice Flow-Thru by way of the December 2000 software release, was Telcordia’s obligation modified in any way as a consequence of the allegations pleaded in Telcordia’s second amendment (of which notice was given on 25 March 2002) and, if so, in precisely what way was the obligation modified?’
I. The Arbitrator’s Award
[31] The arbitrator accepted Telcordia’s interpretation in relation to the primary question and accordingly found it unnecessary to deal with the subsidiary questions. He went further by disposing of another issue, namely the repudiation issue. This he did by holding that Telkom had repudiated the Integrated Agreement and that Telcordia had validly accepted the repudiation, and by dismissing Telkom’s counterclaims. Whether he was entitled to do this is a matter which is dealt with in the accompanying judgment of Cloete JA where the relevant parts of the award are quoted. Suffice it to say already at this juncture that the position of the parties, as expressed by Telkom, was that the arbitrator was requested, in the best interests of the parties and in accordance with the spirit of the ICC rules, to decide as many of the issues that could fairly have been determined in the light of the evidence, both oral and written, led at the May proceedings.
J. The Grounds for Review
[32] The grounds for any review as well as the facts and circumstances upon which the applicant wishes to rely have to be set out in the founding affidavit. These may be amplified in a supplementary founding affidavit after receipt of the record from the presiding officer, obviously based on the new information which has become available.14
[33] Telkom, in its founding affidavit relied for reviewing the arbitrator’s award on some of the provisions of s 33(1) of the Act. It reads:
‘Where—
(a) any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or
(b) an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers; or
(c) an award has been improperly obtained,
the court may, on the application of any party to the reference after due notice to the other party or parties, make an order setting the award aside.’
Telkom did not rely on para (c) but on misconduct under (a) and the two grounds of (b), namely, gross irregularity and the exceeding of power.
[34] Telkom alleged that the arbitrator had committed gross irregularities in the conduct of the proceedings by –
(i) breaching an undertaking or promise to receive further evidence relevant to the ‘London agreement’;
(ii) failing to refer legal questions for the opinion of the court under s 20; and
(iii) proceeding to hand down his award in the face of a pending s 20 application.
[35] The accusation of misconduct in relation to his duties was based on the allegations that the arbitrator –
(i) had made key findings which were ‘grossly incorrect, unfair and unreasonable’; and
(ii) had expressly ignored relevant evidence which manifested bias and partiality.15
[36] The statement that the arbitrator had exceeded his powers was based on the allegations that –
(i) he proceeded to hand down his award in the face of a pending s 20 application;
(ii) he had made key findings which were ‘grossly incorrect, unfair and unreasonable’; and
(iii) he had ignored important provisions of the Integrated Agreement.
[37] The arbitrator filed a short report to the court in which he dealt with the nub of the attack on his integrity; his alleged inability to deal with South African law; the allegation that he had made findings for which there was no evidence; his alleged breach of an undertaking; and some allegations concerning s 20.
[38] Telkom used, if not abused, its right to amplify by filing a supplementary affidavit of 120 pages in which it attacked the arbitrator’s report and expanded on the allegation of bias. In addition, Telkom raised a new ground of review, relating to the finding that Telcordia had validly cancelled the agreement and the dismissal of Telkom’s counterclaims. This argument was based on both legs of s 33(1)(b).
[39] In its replying affidavit and without explanation or apology Telkom withdrew the allegation of misconduct. This allegation, as noted, had two legs but as time went on Telkom sought, successfully in the high court, to rely on some of the facts that were proffered in support of this allegation.
[40] At the hearing in the high court Telkom relied on two review grounds only, namely the s 20 issue and the repudiation issue. But during Telcordia’s argument in answer, and through the intervention of the court, the alleged ‘grossly incorrect’ findings (on which Telkom no longer relied) were metamorphosed into ‘gross irregularities’ and expanded, and, in the event, became the basis of the judgment below.
[41] The case as developed by Telkom in its written argument also deviated appreciably from the allegations that were levelled against the arbitrator in the founding papers, and the number of points taken was in inverse proportion to their merit. During the hearing of the appeal another seismic shift took place.
[42] Symptomatic of this case is the ‘verbal manipulation’16 indulged in by the high court and by Telkom by reclassification and relabelling. As the Bard said about roses, a spade remains a spade even if called a shovel or a pitchfork. Telkom for example raised for the first time on appeal the complaint that the arbitrator had acted irrationally. It spent pages and pages on the legal argument but did not even bother to provide us with the factual foundation for the submission. This came only after a questionnaire from this Court was put to the parties. In the answer given by Telkom we were told that what in the past had been called gross irregularities or misconduct was now irrational behaviour. For the legal submission Telkom relied on the panoply of the common law, the rule of law, the right to a fair trial, the right to property, and the Act. During oral argument, though, Telkom limited its submission. Irrationality, it now said, was a species of gross irregularity. This submission failed to appreciate that irrationality is an outcome standard while, as I shall demonstrate, gross irregularity is a process standard. Interestingly, it is not alleged that the arbitrator’s interpretation of the Integrated Agreement was irrational. As will appear in due course, there is no factual basis for any of these attacks.
[43] After all is said and done, the grounds of review ultimately relied on were these:
(a) by interpreting the Integrated Agreement incorrectly the arbitrator committed a material error so fundamental that he misconceived the nature of the inquiry and his duties;
(b) by breaching an undertaking to hear oral evidence on the London agreement the arbitrator committed a gross irregularity;
(c) by denying Telkom the opportunity to apply to court under s 20 of the Act for an order compelling him to state legal questions for the decision by the court, the arbitrator committed a gross irregularity and acted irrationally;
(d) by deciding the repudiation question and dismissing Telkom’s counterclaims the arbitrator exceeded his authority and decided a question without evidence, thereby committing a gross irregularity and acting irrationally.
K. The Relationship between the Constitution and the Arbitration Act
[44] As a starting point, the constitutionality of the Arbitration Act is not in issue and its validity is a given.17 Indeed, Telkom conceded without any judicial prodding that the Act as interpreted by our courts passes constitutional muster. However, the Act must be read in the light of the provisions of the Bill of Rights and the meaning attributed to it must promote the spirit, purport and objects of the Bill of Rights.
[45] Two sections of the Bill of Rights were raised during argument. They are s 33, which deals with just administrative action, and s 34, which deals with access to courts. In the light of the judgment of this Court in Total Support18 the administrative justice provision can be discounted. There it was pointed out that administrative justice is concerned with the exercise of public power or the performance of a public function, something with which consensual arbitration is not concerned.19 Smalberger ADP said in this regard (para 24):
‘Arbitration does not fall within the purview of “administrative action”. It arises through the exercise of private rather than public powers. This follows from arbitration's distinctive attributes, with particular emphasis on the following. First, arbitration proceeds from an agreement between parties who consent to a process by which a decision is taken by the arbitrator that is binding on the parties. Second, the arbitration agreement provides for a process by which the substantive rights of the parties to the arbitration are determined. Third, the arbitrator is chosen, either by the parties, or by a method to which they have consented. Fourth, arbitration is a process by which the rights of the parties are determined in an impartial manner in respect of a dispute between parties which is formulated at the time that the arbitrator is appointed.”
Telkom did not argue that this decision was wrong and approached the matter from a different angle, as I shall indicate later.20
[46] That brings me to the access to courts provision, s 34, which reads as follows:
‘Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.’
[47] The question whether s 34 is at all applicable was also discussed in Total Support but this Court left the question open. On balance, I believe that s 34 is indeed applicable. This would be in accordance with the approach of the European Court of Human Rights (ECHR).21 But, as Smalberger ADP said (para 28), there is nothing to prevent parties from defining (at least in private consensual disputes) what is fair for purposes of their dispute. This is consonant with the approach in Napier v Barkhuizen22 where Cameron JA, with reference to Brisley v Drotsky, 23 said (para 12):
‘the Constitution prizes dignity and autonomy, and in appropriate circumstances these standards find expression in the liberty to regulate one’s life by freely engaged contractual arrangements. Their importance should not be under-estimated.’
And (para 13):
‘the Constitution requires us to employ its values to achieve a balance that strikes down the unacceptable excesses of “freedom of contract”, while seeking to permit individuals the dignity and autonomy of regulating their own lives. This is not to envisage an implausible contractual nirvana. It is to respect the complexity of the value system the Constitution creates. It is also to recognise that intruding on apparently voluntarily concluded arrangements is a step that judges should countenance with care, particularly when it requires them to impose their individual conceptions of fairness and justice on parties’ individual arrangements.’
[48] The rights contained in s 34 (as the ECHR accepted) may be waived unless the waiver is contrary to some other constitutional principle or otherwise contra bonos mores. Parties to a private dispute may, for instance, compromise their dispute and thereby forego all their rights under s 34. By agreeing to arbitration, parties waive their rights pro tanto.24 They usually waive the right to a public hearing. They may even waive their right to an independent tribunal.25 Counsel gave the example of two children who ask a parent to arbitrate their commercial dispute. The example in the ECHR is even more telling. The parties each appointed their own arbitrator and they, in turn, appointed a third. The one arbitrator had earlier acted for and advised the one party to the dispute. The second party became aware of this but proceeded happily with the arbitration. The national court had held that the second party thereby waived his right to an independent tribunal. The ECHR confirmed that such a waiver was permissible and not inimical to a fair trial guarantee similar to that in s 34.
[49] In this case, by agreeing to arbitration under the ICC rules, the parties agreed (in terms of art 28.1) to the following:26
‘Every Award shall be binding on the parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out any Award without delay and shall be deemed to have waived their right to recourse insofar as such waiver can validly be made.’
In addition, art 33 provides:
‘A party who proceeds with the arbitration without raising its objection to a failure to comply with any provision of these Rules, or of any other rules applicable to the proceedings, any direction given by the Arbitral Tribunal, or any requirement under the arbitration agreement relating to the constitution of the Arbitration Tribunal, or to the conduct of the proceedings, shall be deemed to have waived its right to object.’
[50] By agreeing to arbitration parties to a dispute necessarily agree that the fairness of the hearing will be determined by the provisions of the Act and nothing else.27 Typically, they agree to waive the right of appeal,28 which in context means that they waive the right to have the merits of their dispute re-litigated or reconsidered.29 They may, obviously, agree otherwise by appointing an arbitral appeal panel, something that did not happen in this case.
[51] Last, by agreeing to arbitration the parties limit interference by courts to the ground of procedural irregularities set out in s 33(1) of the Act. By necessary implication they waive the right to rely on any further ground of review, ‘common law’ or otherwise. If they wish to extend the grounds, they may do so by agreement but then they have to agree on an appeal panel because they cannot by agreement impose jurisdiction on the court. However, as will become apparent, the common-law ground of review on which Telkom relies is contained – by virtue of judicial interpretation – in the Act, and it is strictly unnecessary to deal with the common law in this regard. But, by virtue of the structure of the judgment below and the argument presented to us, it is incumbent on me to take the tortuous route.
L. The Meaning of Section 33(1)(b): ‘Gross Irregularity’ and ‘Exceeding Powers’
[52] The term ‘exceeding its powers’ requires little by way of elucidation and this statement by Lord Steyn says it all:30
‘But the issue was whether the tribunal “exceeded its powers” within the meaning of section 68(2)(b) [of the English Act]. This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vesting in the tribunal no excess of power under section 68(2)(b) is involved. Once the matter is approached correctly, it is clear that at the highest in the present case, on the currency point, there was no more than an erroneous exercise of the power available under section 48(4). The jurisdictional challenge must therefore fail.’
Apart from the proper application of the test nothing more was made in argument of the meaning of the term. The argument focussed on the meaning of ‘gross irregularity in the conduct of the arbitration proceedings’.
[53] This term must be understood in context, historical and textual. (I have already dealt with the constitutional considerations.) The ground is to all intents and purposes identical to a ground of review available in relation to proceedings of inferior courts.31 Although the textual setting is different, which might affect its meaning,32 I am content to hold that for present purposes the two provisions are identical and that cases decided in relation to the review of inferior courts are relevant in determining the meaning and scope of para (b).
[54] The Act was preceded by three colonial statutes. They, following the approach of the pre-Union courts, broke completely with the Roman-Dutch tradition by providing that an arbitral award is not appealable, that is, that its merits may not be the subject of attack.33 But they particularly provided that an award could be set aside on the ground of misconduct or if improperly procured.34
[55] The review of an award based on a wrong construction of a deed of partnership was the subject of Dickenson & Brown.35 This Court held that a review on this basis was impermissible on two grounds. The first was the general principle that when parties select an arbitrator as the judge of fact and law, the award is final and conclusive, irrespective of how erroneous, factually or legally, the decision was. Second, the colonial laws (in that case the one of Natal) did not change the position. Such an error, he held, could not amount to misconduct unless the mistake was so gross and manifest that it could not have been made without some degree of misconduct or partiality, in which event the award would be set aside not because of the mistake, but because of misconduct.36
[56] Solomon JA recognised that it would have been a valid ground for setting aside the award if an arbitrator had ‘exceeded his powers’: to exceed one’s powers does not go to merit but to jurisdiction. He also held that there is no distinction between a mistake on the face of the award and one not appearing on the face of it, a rule abolished in England only in 1969.37 Furthermore, he held that the English rule, which permitted courts to set aside awards on the ground of mistakes of law, was not part of our law38
[57] Did the introduction by the 1965 Act of para (b) indicate a changed intention? Is it likely that the legislature would have intended to introduce a review on substantive grounds (taking into account that an appeal is also not possible) by using the procedural language of ‘gross irregularity in the conduct of the arbitration proceedings’? I think not and this Court also did not think so when called upon to decide the effect of errors of law on an award under the current Act. In two instances, namely Veldspun and Total Support this Court confirmed the correctness of the Dickenson & Brown approach.39
[58] Telkom expressly disavowed reliance on a general power of courts to review errors of law committed by arbitrators but instead relied on (i) a common-law power to review awards that are tainted by ‘material errors of law’ and (ii) s 33(1)(b), arguing that where the arbitrator misconceives the whole nature of the inquiry or his duties in connection therewith he commits a gross irregularity in the proceedings. The high court, I should mention, decided the matter on ground (ii).
[59] I intend to deal first with the common-law point. As Telcordia mentioned, Telkom was unclear on whether it intended to rely on the common law relating to arbitration or that concerning administrative law. Dickenson & Brown,40 I have said, held that there was no common-law review under arbitration law. In addition, I have already expressed the view that a party to a consensual arbitration under the Act is not entitled to rely on an administrative common-law review ground.
[60] In our law the principles of administrative justice have now been subsumed by the Constitution and, as stated, the considerations underlying them are different from those that apply to arbitration. This difference has also been recognised in England, as Lord Steyn said:41
‘The reasoning of the lower courts, categorising an error of law as an excess of jurisdiction, has overtones of the doctrine in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 which is so well known to the public law field. It is, however, important to emphasise again that the powers of the court in public law and arbitration law are quite different. This has been clear for many years, and is now even more manifest as a result of the enactment of the 1996 [English Arbitration] Act.’
[61] Telkom sought to rely in argument on Anisminic and a statement by Malan J42 (relying indirectly on Anisminic) for the proposition that all decisions based on a material error of law stand to be reviewed. As mentioned, Anisminic was concerned with administrative action, as was Malan J’s judgment. In any event, Anisminic has been misunderstood by many, including Denning MR, who sought to derive from it the general principle mentioned by Malan J. Denning MR put his view with characteristic vigour when he said in a public lecture that no court or tribunal has any jurisdiction to make an error of law on which the decision of the case depends.43 He was soon put right by the House of Lords in Racal.44
[62] Racal was followed by the House in Page,45 a judgment on which Malan J relied for his general proposition so eagerly embraced by Telkom. The House emphasised46 that in the case of decisions of administrative tribunals made under statutory powers a relevant error of law in the actual making of the decision, which affects the decision, may be corrected on review unless Parliament intended that the administrative body was to be the final arbiter of questions of law. If, however, a law provided that a judicial body’s decision was to be final and conclusive on a question of law, there was no reason to assume that a review would be permitted. In Page the issue concerned the position of a ‘visitor’, someone who, in terms of university rules, was the ‘sole judge’ of the interpretation and application of the university’s domestic rules. Errors of law committed by a visitor within his jurisdiction were held not to be subject to judicial scrutiny.
[63] As mentioned, even before the 1979 English Arbitration Act, legal questions, such as the construction of a contract that had been specifically referred to an arbitrator, could not be reviewed on the ground of error.47 In the present case, it will be recalled, the interpretation of the contract was specifically referred to the arbitrator.
[64] This Court, in Hira v Booysen,48 dealing with a statutory administrative tribunal, referred with approval to Anisminic and to Racal, and did so without suggesting that the Denning approach, which had been rejected in Racal, was correct. It was in this context that Corbett CJ formulated the following rule (at 93C-D):
‘Where the complaint is that the tribunal has committed a material error of law, then the reviewability of the decision will depend, basically, upon whether or not the Legislature intended the tribunal to have exclusive authority to decide the question of law concerned. This is a matter of construction of the statute conferring the power of decision.’
[65] Corbett CJ was at pains to draw a distinction between common-law reviews and those based on statute (such as the present)49 and to state expressly that the quoted rule (and the others mentioned by him) applies to the former.50 Apart from the fact that I do not believe that he intended to propound a rule applicable to consensual arbitrations, the rule would in any event prevent the review of material errors of law because the arbitrator was, subject to the limitations in the Act, intended to have exclusive jurisdiction over questions of fact and law. That follows from the provisions of the Act, which exclude appeals and limit reviews. The fact that a court may be approached to decide a question of law under s 20 does not affect this conclusion. If s 20 were used, a review or appeal for an error of law is not possible because, once again, the opinion of the court (of first instance) and even that of counsel (learned or otherwise) is final. A statutory provision such as that contained in s 28, that unless the arbitration agreement provides otherwise, an award is, subject to the provisions of the Act, final and not subject to appeal, and that each party to the reference must abide by and comply with the award in accordance with its terms, clearly indicates that the Legislature intended the arbitral tribunal to have exclusive authority to decide whatever questions were submitted to it, including any question of law. That is what the parties agreed. This does not imply that the arbitrator has the exclusive right to decide the scope of his jurisdiction because if he exceeds his powers the award is reviewable on that ground.
[66] Telkom also sought to rely on a tacit term of the arbitration agreement, submitting that it would not have agreed to a term permitting the arbitrator to commit a gross error of law. In this regard Telkom referred to what Jansen JA had said in Theron51 when dealing with the interpretation of a constitution of a church, namely that it is not to be assumed that parties to a contract would have agreed to be subjected to unreasonable actions.52 Although I agree with the generality of the proposition, it should be stressed that the judgment of Jansen JA dealt with the question of whether a church body had interpreted its constitution correctly and had followed the correct disciplinary appeal procedure: in other words, he sought to determine the scope of the mandate of the church body as agreed in its constitution. This question, he held, was not something falling within the exclusive jurisdiction of the church body. Apart from the fact that the principles concerning domestic tribunals are not the same as those governing administrative or arbitration proceedings53 here the scope of the arbitrator’s mandate is not in issue.54
[67] In any event, the parties bound themselves to arbitration in terms of the Act and if the Act, properly interpreted, does not allow a review for material error of law, one cannot imply a contrary term. Also, parties cannot by agreement extend the grounds of review as contained in the Act.
[68] Even assuming the jurisdiction to review on the ground of material error of law, the question arises as to what is meant by the adjective ‘material’. Telkom sought to draw a distinction between ‘mere’ errors and ‘material’ errors and in effect argued that all errors that make a party lose the arbitration are material. This approach renders the difference between appeals and reviews meaningless and in effect gives a right of appeal, which the Act prohibits.
[69] Errors of law can, no doubt, lead to gross irregularities in the conduct of the proceedings. Telcordia posed the example where an arbitrator, because of a misunderstanding of the audi principle, refuses to hear the one party. Although in such a case the error of law gives rise to the irregularity, the reviewable irregularity would be the refusal to hear that party, and not the error of law. Likewise, an error of law may lead an arbitrator to exceed his powers or to misconceive the nature of the inquiry and his duties in connection therewith.
[70] Hira v Booysen concerned the scope of the tribunal’s mandate or ‘jurisdiction’. The tribunal had to determine whether Hira had done something ‘in public’. It misconstrued this term, which defined its powers, and, accordingly, committed a ‘material’ error. Fortunately I need not pursue this further because Telkom relied on only one type of error as being material: where a decision maker misconceives the whole nature of the inquiry or his duties in connection therewith. This common-law ground also applies to a review under a statute that provides that a gross irregularity in the course of the proceedings may be reviewed. It is therefore unnecessary to delve much further and redo the exercise that Corbett CJ did in Hira v Booysen and analyse the line of cases again.
[71] That brings me to the judgments of Greenberg and Schreiner JJ in Goldfields Investment.55 The case dealt with a review of a lower court on the statutory ground of ‘gross irregularity’ and held that the term encompasses the case where a decision-maker misconceives the whole nature of the inquiry or his duties in connection therewith. In the light of the general acceptance of the rule, also by this Court, a reconsideration of its validity does not arise. But that is not the end of the inquiry because it is apparent that both the high court and Telkom misunderstood the rule and misapplied it. I therefore propose to analyse the case law in this regard and then consider whether the arbitrator’s alleged misconceptions fall within the rule.
[72] It is useful to begin with the oft quoted statement from Ellis v Morgan56 where Mason J laid down the basic principle in these terms:
‘But an irregularity in proceedings does not mean an incorrect judgment; it refers not to the result, but to the methods of a trial, such as, for example, some high-handed or mistaken action which has prevented the aggrieved party from having his case fully and fairly determined.’
[73] The Goldfields Investment qualification to this general principle dealt with two situations. The one is where the decision-making body misconceives its mandate, whether statutory or consensual. By misconceiving the nature of the inquiry a hearing cannot in principle be fair because the body fails to perform its mandate.57 Goldfields Investment provides a good example. According to the applicable Rating Ordinance any aggrieved person was entitled to appeal to the magistrates’ court against the value put on property for rating purposes by the local authority. The appeal was not an ordinary appeal but involved, in terms of the Ordinance, a rehearing with evidence. The magistrate refused to conduct a rehearing and limited the inquiry to a determination of the question whether the valuation had been ‘manifestly untenable’. This meant that the appellant did not have an appeal hearing (to which it was entitled) at all because the magistrate had failed to consider the issue prescribed by statute. The magistrate had asked himself the wrong question, that is, a question other than that which the Act directed him to ask.58 In this sense the hearing was unfair. Against that setting the words of Schreiner J should be understood:59
‘The law, as stated in Ellis v Morgan (supra) has been accepted in subsequent cases, and the passage which has been quoted from that case shows that it is not merely high-handed or arbitrary conduct which is described as a gross irregularity; behaviour which is perfectly well-intentioned and bona fide, though mistaken, may come under that description. The crucial question is whether it prevented a fair trial of the issues. If it did prevent a fair trial of the issues then it will amount to a gross irregularity. Many patent irregularities have this effect. And if from the magistrate’s reasons it appears that his mind was not in a state to enable him to try the case fairly this will amount to a latent gross irregularity. If, on the other hand, he merely comes to a wrong decision owing to his having made a mistake on a point of law in relation to the merits, this does not amount to gross irregularity. In matters relating to the merits the magistrate may err by taking a wrong one of several possible views, or he may err by mistaking or misunderstanding the point in issue. In the latter case it may be said that he is in a sense failing to address his mind to the true point to be decided and therefore failing to afford the parties a fair trial. But that is not necessarily the case. Where the point relates only to the merits of the case, it would be straining the language to describe it as a gross irregularity or a denial of a fair trial. One would say that the magistrate has decided the case fairly but has gone wrong on the law. But if the mistake leads to the Court’s not merely missing or misunderstanding a point of law on the merits, but to its misconceiving the whole nature of the inquiry, or of its duties in connection therewith, then it is in accordance with the ordinary use of language to say that the losing party has not had a fair trial. I agree that in the present case the facts fall within this latter class of case, and that the magistrate, owing to the erroneous view which he held as to his functions, really never dealt with the matter before him in the manner which was contemplated by the section. That being so, there was a gross irregularity, and the proceedings should be set aside.’
[74] The other line of cases, which dealt with reviews of inferior courts, was concerned with orders made where a jurisdictional fact was missing or, put differently, ‘a condition for the exercise of a jurisdiction had not been satisfied’.60 A typical example is Primich.61 The magistrate could order, in terms of the relevant court rule, the provision of security if the plaintiff was not resident in the country. The magistrate, in spite of the limitation on his jurisdiction, made such an order against a plaintiff who was resident in the country. Objectively, this was not a case of an error of law; it was an error of fact dressed up as an error of law. Decisions of a factual nature can all too easily be dressed up as issues of law.62 There was no indication that the magistrate had misinterpreted the rule; he misunderstood the facts, holding that a jurisdictional fact was present while it was not. A similar instance was Visser v Estate Collins.63 In terms of the statute concerned, the magistrates’ court could set aside a void judgment granted by default provided the application for rescission was made within one year of the date on which the applicant first had knowledge of the invalidity. The magistrate set aside a void judgment by default without any evidence as to when the applicant had become aware of the invalidity. Once again, the magistrate had failed to determine whether a jurisdictional fact for the setting aside of the judgment was present. Whether this was due to an error of law is really beside the point.
[75] In all these cases the complaint was directed at the method or conduct and not the result of the proceedings.64 Where the legal issue is left for the decision of the functionary any complaint about how he reached his decision must be directed at the method and not the result. This is known as the Doyle v Shenker65 principle.
[76] It is wrong to confuse the reasoning with the conduct of the proceedings. Although the line may be fine and sometimes difficult to draw, I believe that the following example makes the difference clear. In Jooste Lithium66 the inspector had the authority to decide any dispute that could arise in regard to the validity of the pegging or beaconing of claims and to decide any dispute arising through over-pegging. Against that background O H Hoexter JA said:67
‘It is clear that in deciding the disputes which he is authorised to decide, there is entrusted to the inspector the duty not only of finding the relevant facts but also of deciding the legal issues involved (see Johannesburg City Council v Chesterfield House (Pty) Ltd 1952 (3) SA 809 at p 825 (AD). In deciding the legal issues involved it would also be the duty of the inspector to interpret the relevant sections of the Proclamation and the regulations.’
[77] The Proclamation conferred a right of appeal from the inspector to the Administrator, whose decision was to be final. With that in mind, Hoexter JA continued:68
‘It seems to me, with respect, that the learned Judge erred in holding that the interpretation of the regulations is a matter for the Court and that the Administrator is bound by the Court's interpretation. In my opinion the Legislature intended that the regulations should be interpreted in the first instance by the inspector and on appeal by the Administrator. It is for the Administrator to decide any legal issues involved in a dispute as to the pegging of a claim, and the most important legal issue is the interpretation of the regulations. It cannot be said that the wrong interpretation of a regulation would prevent the Administrator from fulfilling its statutory function or from considering the matter left to it for decision. On the contrary, in interpreting the regulations the Administrator is actually fulfilling the function assigned to it by the statute, and it follows that the wrong interpretation of a regulation cannot afford any ground for review by the Court. (See Doyle v Shenker & Co Ltd 1915 AD 233.)
The present case differs from cases like Goldfields Investment Ltd v City Council of Johannesburg, 1938 TPD 551, in which the result of the wrong interpretation of a section in the relevant statute was that the magistrate never directed his mind to the issue which in terms of the statute it was his duty to decide. In the present case the Administrator must direct [his] mind to the issue whether the requirements of the regulations have been observed and in order to decide that issue it is bound to interpret the regulations.’
[78] It will be necessary to consider the facts on which the high court relied to determine whether what the arbitrator did in this matter falls within the purview of Goldfields Investment or within Doyle v Shenker. This does not mean that the two principles are mutually exclusive. It simply means that if the arbitrator does not fall foul of Goldfields Investment, the principles of Doyle v Shenker apply.
[79] Before turning to the facts it is necessary to dispose of Telkom’s concluding argument on this aspect of the case. It was that the issue of ‘gross irregularity’ should be answered by asking whether Telkom, in the words of Schreiner J, had a fair trial on the interpretation issue. That a party is entitled to a fair trial, as Telcordia said, is not contentious. Telkom accepted that the high court never had asked itself this question and that its own heads of argument had not dealt with the point. When invited by us to state why the hearing had been unfair, counsel who argued this aspect deferred to his lead counsel who, in turn, chose to disregard the invitation. We were left with a chasm between the legal and factual argument.
M. The Nature of the Inquiry, the Duties of the Arbitrator, and the Scope of his Powers
[80] Before considering the attack on the arbitrator on the ground that he had committed gross irregularities in the conduct of the arbitration proceedings (by misconceiving the nature of the inquiry and his duties) or exceeded his powers, it is necessary to determine the nature of the inquiry, the arbitrator’s duties, and his powers.
[81] As mentioned at the outset, according to the Integrated Agreement the arbitrator had to determine all disputes between the parties, including disputes relating to the interpretation of the agreement and disputes of a legal, financial and technical nature; the procedural rules of the ICC were to apply; the laws of the Republic would govern the agreement; and, subject to the arbitration clause, the parties consented to the jurisdiction of South African courts.
[82] The May issues, as defined, required the arbitrator to determine Telcordia’s primary contractual obligation under the Integrated Agreement ‘having regard to the terms thereof and all admissible evidence in relation thereto’. In this regard he had to choose between two opposing contentions. It is clear from the way the May issues were defined that the questions were interdependent and that, depending on the outcome of, say, question 1, question 3 could have fallen away.
[83] In short, the arbitrator had to (i) interpret the agreement; (ii) by applying South African law; (iii) in the light of its terms, and (iv) all the admissible evidence.
[84] In addition, the arbitrator had, according to the terms of reference, the power (i) not to decide an issue which he deemed unnecessary or inappropriate; (ii) to decide any further issues of fact or law, which he deemed necessary or appropriate; (iii) to decide the issues in any manner or order he deemed appropriate; and (iv) to decide any issue by way of a partial, interim or final award, as he deemed appropriate.
[85] The fact that the arbitrator may have either misinterpreted the agreement, failed to apply South African law correctly, or had regard to inadmissible evidence does not mean that he misconceived the nature of the inquiry or his duties in connection therewith. It only means that he erred in the performance of his duties. An arbitrator ‘has the right to be wrong’ on the merits of the case, and it is a perversion of language and logic to label mistakes of this kind as a misconception of the nature of the inquiry – they may be misconceptions about meaning, law or the admissibility of evidence but that is a far cry from saying that they constitute a misconception of the nature of the inquiry. To adapt the quoted words of Hoexter JA:69 It cannot be said that the wrong interpretation of the Integrated Agreement prevented the arbitrator from fulfilling his agreed function or from considering the matter left to him for decision. On the contrary, in interpreting the Integrated Agreement the arbitrator was actually fulfilling the function assigned to him by the parties, and it follows that the wrong interpretation of the Integrated Agreement could not afford any ground for review by a court.
[86] Likewise, it is a fallacy to label a wrong interpretation of a contract, a wrong perception or application of South African law, or an incorrect reliance on inadmissible evidence by the arbitrator as a transgression of the limits of his power. The power given to the arbitrator was to interpret the agreement, rightly or wrongly; to determine the applicable law, rightly or wrongly; and to determine what evidence was admissible, rightly or wrongly.70 Errors of the kind mentioned have nothing to do with him exceeding his powers; they are errors committed within the scope of his mandate. To illustrate, an arbitrator in a ‘normal’ local arbitration has to apply South African law but if he errs in his understanding or application of local law the parties have to live with it. If such an error amounted to a transgression of his powers it would mean that all errors of law are reviewable, which is absurd.
[87] In support of this I revert to Doyle v Shenker,71 a case that dealt with a review on the ground of a gross irregularity in the proceedings. Innes CJ said in a passage that speaks for itself:72
‘Now a mere mistake of law in adjudicating upon a suit which the magistrate has jurisdiction to try cannot be called an irregularity in the proceedings. Otherwise a review would lie in every case in which the decision depends upon a legal issue, and the distinction between procedure by appeal and procedure by review, so carefully drawn by statute and observed in practice, would largely disappear. Yet in this case it is a mistake of law alone which is relied upon as constituting gross irregularity. There is neither allegation nor suggestion that the magistrate, his attention having been drawn to sec. 37, deliberately refused to apply his mind to it, or to consider it. The position, if the section means what the applicant contends, is that the magistrate either honestly misinterpreted or completely overlooked it. In either event it would not, I am afraid, be the first occasion on which a court of law has misread a statutory provision or overlooked one not brought to its notice at the trial. Whichever supposition were the correct one, the result would be (still assuming the correctness of the applicant's interpretation) an unfortunate error of law which, but for the special prohibition of the statute would afford good ground for an appeal. But there would be no gross irregularity in the proceedings, and therefore no justification for a review.’
[88] Innes CJ added:73
‘It was suggested that, in the present instance, the fact that the magistrate did not deal with the merits, would constitute a gross irregularity. But if he considered the document to be conclusive, there was no need to discuss the merits. He may have been wrong in that view, but that would be an error of law only, and not an irregularity.
The admission of illegal evidence is in itself an independent ground of review.74 But the document in question was not improperly received in evidence; indeed, it could not properly have been excluded. If the magistrate's reading of it, and of the bearing of the statute upon it, was wrong, that could again be a mistake of law, which, as already pointed out, could afford no basis for review proceedings.’
[89] There is another matter that falls under this rubric and that concerns the repudiation issue. I have already mentioned that at the conclusion of the May hearing the arbitrator was requested, in the best interests of the parties and in accordance with the spirit of the ICC rules, to decide as many of the issues as could fairly have been determined in the light of the evidence, both oral and written, led at the May proceedings. Using this power he decided that Telkom had repudiated and that Telcordia had accepted the repudiation. It was within the power of the arbitrator, in the light of the extension agreement between the parties, to decide the scope of his mandate.75
N. How did the Arbitrator understand his Duties?
[90] The arbitrator understood clearly that his duty was to interpret the agreement and that he had, in this regard, to choose between the conflicting contentions of Telcordia and Telkom. Nowhere in his award is there any indication that he sought to do anything else. He understood particularly well that he had to determine the meaning of the contract with reference to its true construction and that he could only have regard to admissible evidence.76 In fact, he complained during the hearing about the relevance of some of the evidence relating to construction but the parties insisted that he should hear it. He ‘stressed’ (his word) that his interpretation was based on the wording and structure of the Integrated Agreement itself.
[91] The arbitrator understood that he had to apply South African law. He knew that he could only rely on background evidence and not on surrounding circumstances, and he stated that he had kept this in mind in interpreting the Integrated Agreement.77 He did not refer to any identifiable surrounding circumstances in his award although he did refer to the subsequent conduct of the parties in order to interpret the agreement without finding that the agreement was ambiguous. This he did consciously, relying on Christie,78 who in turn relies on Shill v Milner79 as explained by Goldstone J in Briscoe v Deans.80 The rule is that evidence of subsequent conduct is admissible, even where the agreement is on its face unambiguous, if the parties by consent lead such evidence.
[92] The arbitrator was fully conscious of Shifren and, as I have mentioned, his award shows that he understood the principle and its implications fully. He did, however, come to the conclusion that the doctrine did not arise in the circumstances of the case.
[93] In the end, the arbitrator accepted Telcordia’s interpretation and he answered the questions put accordingly. Some of the questions became academic as a result of the primary finding and therefore he did not answer them. In fact, they could not have been answered in the light of his conclusion. In answering only some questions and refraining from answering others, and in making rulings and orders consequent upon his primary finding, he consciously used the powers he had according to his terms of reference.81
O. The Findings by the High Court relating to the Arbitrator’s Misconceptions about his Duties, and Exceeding his Powers
[94] The findings of the high court on this issue are many and repetitive82 and are scattered all over the judgment. I have no intention of dealing with them all but shall limit myself to the main findings. The first finding was that the arbitrator had misinterpreted the pleadings. For this the high court undertook a detailed analysis of the pleadings to find that Telkom had relied on Shifren in relation to the primary (interpretation) question. The problem is that Telkom had never alleged that the arbitrator had misconstrued the pleadings – it was not a ground of review – and before us Telkom did not seek to make out such a case. I can only say that the court embarked on what could in fairness be described as a judicial snipe hunt.83
[95] Although formulated as a separate and alternative ground, the essence of the high court’s finding in relation to the interpretation of the Integrated Agreement was that the arbitrator had ‘failed to refer to and apply’ the applicable principles of proper interpretation, and that this constituted a misconception of the whole nature of the inquiry and of his duties in connection therewith, and that he had exceeded his powers.
[96] The statement that the arbitrator had failed to refer to the applicable principles of construction, as I have indicated in the preceding section of this judgment, amounts to a gross misrepresentation of what the arbitrator did. The court, when dealing with the inadmissibility of surrounding circumstances, provided the reader with a veritable compendium of case law while the arbitrator articulated the same rule in a single sentence but the court did not refer to a single rule of interpretation that the arbitrator had failed to take into account.
[97] Particularly disturbing about the high court’s treatment of the arbitrator is that it simply ignored the fact that the arbitrator had relied on authority for utilising evidence concerning subsequent conduct where the agreement is unambiguous in interpreting a contract. The court did not even consider this rule – accepted by Telkom as valid – in coming to its decision. It also ignored the fact that Telkom itself had submitted to the arbitrator that evidence of subsequent conduct of the parties would irrefutably contradict Telcordia’s primary contractual argument; that no argument was addressed to the arbitrator by either party that the evidence led was inadmissible; and that Telkom did not allege in the review proceedings that the arbitrator had relied on irrelevant or inadmissible evidence. How it could be said, in these circumstances, that the arbitrator had committed a gross irregularity is incomprehensible.
[98] The high court in any event failed to distinguish between the interpretation issue and the contractual compliance issue, a distinction the arbitrator perceived at an early stage of the proceedings. The interpretation issue was whether the ‘specifications’ were to be found in FSDs; and the compliance issue was whether, by delivering the particular FSDs and, thereafter releasing or tendering the software described in the FSDs, Telcordia had complied with its contractual obligations. However, the court considered the latter also to be a matter of interpretation as is apparent from its treatment of the sign-off and disclaimer issues, matters to which I shall revert in due course.
[99] The high court’s approach was to interpret the agreement afresh; to come to a different conclusion about its meaning; and then to conclude that as a result of the difference ‘the arbitrator did not apply his mind thereto in a proper manner, [and] that he misconceived the whole nature of the inquiry and his duties therewith’ and that he simultaneously exceeded the bounds of his powers. But it was not for the high court to reinterpret the contract; its function was to determine whether the gross irregularities alleged had been committed. By its reinterpretation the court dealt with the matter as an appeal, reasoning in effect that because the arbitrator was wrong it had to follow that he had committed an irregularity. The failure to apply the applicable principles of interpretation or to come to a wrong conclusion does not amount to a ‘gross irregularity’, as the quotations from Doyle v Shenker84 illustrate. It is circuitous to reason, as the court did, that this alleged failure amounted to a misconception of the whole nature of the inquiry and that consequently the failure amounted to a gross irregularity. The court sought to distinguish Doyle v Shenker on the basis that in that case the magistrate committed an error of law while acting within his jurisdiction, implying that by interpreting the Integrated Agreement the arbitrator had acted outside his jurisdiction, which is simply wrong. If one considers the length of the proceedings, the arbitrator’s active involvement in defining and refining the issues, and the detailed and reasoned award, it was as presumptuous as it was fallacious for the court to have held that the arbitrator did not apply his mind properly to the issues at hand.
[100] The high court justified its approach in first interpreting the Integrated Agreement by reference to judgments dealing with statutory reviews where courts, in order to determine whether the functionary had acted within the scope of the statute, first interpreted the enabling statute. This was always done in order to determine the powers and mandate of the functionary.85 The parallel exercise in this instance required a consideration of the terms of reference and the provisions of the Act, not of the Integrated Agreement.
[101] The gravamen of the high court’s decision on the gross irregularity resulting from a wrong interpretation was that the arbitrator had failed to apply Shifren when answering the primary question about the delivery baseline. In addition, the court relied on what it thought were three further errors of interpretation to which l shall revert. As stated before, I do not intend to reinterpret the contract because that is not the issue and it does not matter for purposes of a review whether the arbitrator was right or wrong. I shall accordingly limit myself to a discussion of the reviewable acts said to have been committed by the arbitrator.
P. The Primary Question and the Shifren Doctrine
[102] The primary question in terms of the May issues was whether Telcordia’s interpretation relating to its software delivery obligations was correct or whether the interpretation advanced by Telkom was the correct one. Telcordia’s case, as repeatedly stated, was that it had to deliver software which complied with the FSDs. Telkom’s case, on the other hand, was that Telcordia had to deliver ‘all’ features and functionalities necessary for purposes of providing the two Flow-Thrus. Both parties relied on the terms of the Integrated Agreement for their different points of view.
[103] The arbitrator upheld Telcordia’s interpretation while the high court upheld Telkom’s interpretation. In doing so, the court ignored the fact that Telkom had, in its pleadings, disavowed the allegation that ‘all’ had to be delivered and that it was unable to articulate before the arbitrator exactly what had to be delivered – it advanced eight versions.
[104] Telcordia’s case, simply put, was this. The Project Plan provided for the delivery by Telcordia of complete specifications (named FDDs in the Project Plan but called in practice, according to the finding of the arbitrator, FSDs) of the software that had to be delivered subsequently. In other words, the specifications were ‘deliverables’ – part of Telcordia’s delivery duty. They did not form part of the Integrated Agreement because they did not exist for a reason, which was spelt out in the definition of ‘specifications’: specifications in Exhibit C were defined to be the ‘requirement specifications’, which Telcordia had to supply six months before the delivery date of the actual software, that fully described the capabilities of the software that had to be delivered. In particular, the agreement recorded that ‘the parties understand and agree that [Telcordia’s] Integrated Response [ie, the SOCs] to [the Request for Bid] is not a typical off-the-shelf offering and that Specifications for the Licenced Software [to be provided by Telcordia] shall be subject to mutual development and agreement by the Parties, and sign off by Telkom.’
[105] In other words, what was required by way of software delivery had to be developed and agreed to by the parties. According to annexure D to the Project Plan, Telkom had to pay substantial amounts for the FDDs. Because FDDs had to be developed in cooperation and agreement with Telkom in the course of performing the contract, FDDs (which were thus mutually developed and agreed upon during the course of the Integrated Agreement and were to be delivered) did not amend the Integrated Agreement. They did not change the ultimate delivery obligation, which was to comply eventually with the SOCs. Since a set of FDDs was developed for each release, it had to follow that they would also determine when particular features and functionalities had to be delivered.
.RTF of original document