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Pro-Khaya Construction CC v Ashford and Others (1107/2020) [2021] ZAECPEHC 6 (19 January 2021)

31 May 2021

On 19 January 2021, the Port Elizabeth High Court handed down judgment in which it reviewed and set aside an arbitration award in terms of Section 33(1) of the Arbitration Act 42 of 1965. 

The Facts

The Applicant entered into subcontractor agreements with the Second and Third respondents in terms of the FIDIC’s “Red Book” (1999) for certain co-joined piping works. The Employer rejected the works due to defects and requested that remedial works be undertaken. The Second respondent represented to the Applicant that the Third respondent was the sole cause of the defective works. The Thirdrespondent refused to remedy the works, and accordingly, the Applicant appointed the Second respondent to do the remedial works. Upon completion, a dispute arose on the payment of the Second respondent due to the extension of the time for completion that resulted from the remedial works. The parties agreed on arbitration and the appointment of the First respondent (“The Arbitrator”). 

During arbitration, the Applicant submitted a counterclaim upon receiving expert opinion and expressed an intention to lead evidence on it. The Arbitrator determined the matter based on the documents in his possession without hearing evidence on the counterclaim and issued an arbitration award. Aggrieved by this, the Applicant instituted proceedings for the review and setting aside of the arbitration award. The Second respondent opposed the application and filed a provisional counter-application for the arbitration award to be made an order of court. 

The issue

The court had to consider whether the Arbitrator committed a gross irregularity as envisaged in s33(1) of the Arbitration Act 42 of 1965 in the conduct of the arbitration proceedings by not affording the applicant an opportunity to present evidence and argument on its counterclaim. 

The application of the law

Section 33(1) of the Arbitration Act provides for the setting aside of an arbitration award in instances where an arbitrator (a) misconstrued himself in relation to his duties or (b) has committed gross irregularity in the conduct of the proceedings. The Arbitrator argued that the parties were afforded an opportunity to indicate whether they intend to file further submissions on the counterclaims and the applicant did not file any submissions. He argued further that there was sufficient evidence in his possession to determine the issue of the counterclaim and as such the procedural irregularity, if any, did not cause prejudice to the applicant. 

The court stated that the Arbitrator’s argument was void of merit. It stated that the Arbitrator acknowledged that it was not competent for him to determine the issue without hearing further representations on the counter claim in an email sent to the parties on 13 July 2017 where he advised as follows: 

Whereas all proceedings in the arbitration had been concluded, apart from the matter of the Respondent’s counterclaim, and for which appeared that some further presentations to the Arbitrator by the parties would warrant consideration, the arbitration process between Strata Civils and Pro-Khaya Construction with particular regard to the matter of the Respondent’s counterclaim, would be suspended.” 

The Court’s findings and order

Consequently, the court found that the issue of the counterclaim had not been ventilated and the Arbitrator’s failure to afford the applicant an opportunity to lead evidence and/or make submissions on the counterclaim caused severe prejudice to the applicant and prevented a fair trial of the issues. The court held that the Arbitrator committed a gross irregularity in the conduct of the arbitration proceedings and set aside the arbitration award. The case was remitted to the Arbitrator to allow the parties to present evidence and submit representations on the Applicant’s counterclaim. The Second respondent was ordered to pay the costs of the application. 

Importance of the case

The case illustrates the importance of fairness in arbitration proceedings in view of the binding nature of arbitration awards in Construction Contracts. An Arbitrator must ensure that all the issues are ventilated, and evidentiary issues, if any, are dealt with before a determination is made. An Arbitrator cannot unilaterally decide that there is sufficient documentary evidence to determine a matter in an instance where a party or both parties have an intention to present evidence or submit representations on an issue to be determined. This decision is merely of persuasive value to other courts of equal status, and it will be interesting to see how another court will decide on a matter of similar facts.