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Umgeni Water v Hollis NO and Another (11876/10) 2012 (3) SA 475 (KZD)

29 June 2022

On the 8th of March 2012, the Kwazulu- Natal High Court handed down judgment in the matter between Umgeni Water (hereafter referred to as the “Applicant’) and Nigel Hollis (hereafter referred to as the “First Respondent’) and Siza Water (Pty) Limited (hereafter referred to as the “Second Respondent’). Although not a recent judicial development, the case provides important guidance on whether the court may grant an order to set aside the appointment of an arbitrator or remove him from office where a party to the arbitration proceedings refuses such removal or setting aside.

The facts

The application was aimed at securing the removal from office of the First Respondent as a arbitrator. The order sought by the Applicant was as follows:

  • That the appointment of the First Respondent as arbitrator between the Applicant and Second Respondent was to be set aside;
  • It was to be declared that the First Respondent was not entitled to any further remuneration pursuant to his appointment as arbitrator; and
  • The Respondents were to be ordered to pay the costs of the application.

The First Respondent opposed the order to the extent that the order that the Applicant sought affected his personal financial interests,  the First Respondent will abide by the Court’s order with regard to the setting aside of his appointment as the arbitrator. The Second Respondent opposed the order on the merits.

The dispute between the Applicant and Second Respondent arose through a written agreement. This contractual agreement contained a dispute resolution clause which provided that should any dispute arise between the parties arising out the agreement, such dispute would be referred to and decided by arbitration.

Neither party objected to the dispute being referred to arbitration and initially the parties agreed to an arbitrator. However, this agreed arbitrator became unavailable to arbitrate the dispute shortly after his agreed appointment. The First Respondent was then appointed as arbitrator and was so until these application proceedings.

During the arbitration hearing the Applicant requested that the arbitrator voluntarily step down. The First Respondent agreed to step down should both parties agree to such. The Second Respondent resisted the Applicant’s request for the arbitrator to step down and as a result the arbitrator did not step down.

The Applicant sought to rely on s13(2)(a) of the Arbitration Act, 42 of 1965 (hereafter “the Act”) which states that “the court may at any time on the application of any party to the reference, on good cause shown, set aside the appointment of an arbitrator or umpire or remove him from office.”

The Judgment

The Judgment provides for an explanation of the position of the phrase ‘good cause’ within South African law and explains that the establishment of ‘good cause’ is required in setting aside a default judgment and in an application for rescission.

The Court relied on Interaccess (Pty) Ltd v Van Dorsten (1999) 2 ALL SA 561(C) which confirmed the approach adopted in Chetty v Law Society Transvaal 1985 (2) SA 756 (A) that ‘good cause’ defies precise or comprehensive definition as a variety of factors need to be considered.

The Court contends that the Act makes no attempt to define ‘good cause’ as a variety of factors and a wider context need to be examined in ascertaining ‘good cause’. An examination of grounds alleged by the Applicant demonstrated that ‘good cause’ exists for the Court to exercise its judicial discretion.

The examination of the perception of bias in the context of an arbitrator is a much sterner test than the test for the perception of bias required for the recusal of a judge as an arbitrator has a direct pecuniary interest in the arbitration proceedings before him.

The Court held that the intention of the parties and the nature of arbitration proceedings are to allow for fast and effective proceedings and that courts should be aware of these factors when ruling on arbitration procedure.

The Applicant relied on six grounds to justify the alleged perception of bias of the First Respondent. These will be examined individually below:

  1. The Applicant claimed that at the outset of the appointment of the First Respondent, the Applicant had reservations but nevertheless embarked upon the process of arbitration. However, the Court held that once the parties have begun proceedings, the aggrieved party may no longer raise such complaint.

  2. The second complaint was as a result of an exception raised to the Second Respondent’s pleadings which was dismissed and which the Applicant sought to contend provides for a perception of bias. In this instance, the Court ruled that an adverse interlocutory decision does not provide an indication of the perception of bias.

  3. Similarly, the Applicant raised grievance with non-adherence to strict rules of evidence as communicated would be applicable to the proceedings. The Court held that in any event, the written agreement provided for no strict evidentiary rules and there can be no perception of bias adduced from this complaint.

  4. The fourth ground relied upon was that the Applicant sought a costs order against the Second Respondent in the arbitration proceedings. The judgment reasons that not awarding cost orders in these proceedings is not uncommon.

  5. The fifth ground is that the Applicant believes that the First Respondent was less tolerant of the Applicant than of the Second Respondent during arbitration proceedings and relied on excerpts from the record to demonstrate such impressions. However, the judgment did not find the excerpts gave an impression of intolerance.

  6. The final complaint was such that after the Applicant had requested a voluntary withdrawal of the First Respondent and reserved its right to make application for the First Respondent’s recusal that the Applicant sought clarification regarding the evidence led regarding an earlier agreement (as discussed in ground 2 above). To this end, the Court reasoned that the Applicant did not pursue this request to its conclusion and the First Respondent was not given a chance to formally rule on such.

The judgment reasons that there is important merit to the fact that arbitrators are appointed by acceptance by both parties to a dispute and enter into a so called ‘tri-partite’ agreement between the arbitrator and two parties at dispute. An arbitrator is obliged to perform the duties which he assumes by his appointment.

Unless agreed by both parties, an arbitrator has an obligation to perform his duties despite the reservations of one party. Once an arbitrator has accepted his appointment he is morally and legally bound to fulfil his appointment to the best of his abilities. If an arbitrator fails to continue with his duties then he may be liable for damages for breach of his duties.

The Court reasoned that for the present matter what needs to be examined is whether the applicant has proven on a preponderance of probabilities that the proceedings gave rise to a perception of bias. Further, a so-called double requirement of reasonableness needs to be examined. This equates to the Applicant needing to demonstrate both a reasonable apprehension of bias and that such apprehension is bias.

On an examination of the grounds that the applicant relies upon, the tests as mentioned above are not satisfied and as such the application was dismissed with costs.

Relevance The case note importantly highlights that in terms of s13(2)(a) of the Act that an appointed arbitrator must comply with his obligations to the best of his ability unless both parties agree to his voluntary withdrawal.