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Walking the Legal Tight Rope in Arbitration Proceedings

31 May 2018

Sub-Section 33(1)(b) of the Arbitration Act No. 42 of 1965 provides that an arbitration award may be set aside where “[a]n arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers”. The scope of this Sub-Section was recently tested in an appeal to the full bench of the Eastern Cape High Court, in the matter of K H Construction CC v Jenkins N.O. and Another (CA326/2017) [2018] ZAECGHC 37 (22 May 2018).

KH Construction and Mr. Conrad Winterbach, entered into an agreement for the construction of a residential dwelling. A number of disputes arose between the two, regarding whether or not the works had been properly completed and the amount, if any, due to K H. KH claimed R 567 312.00 in terms of its final account. Mr. Winterbach sought damages in the sum of R 851 940.00 for defective works and repayment of R 570 280.00 which he alleged had been overpaid to KH.

These disputes were referred to arbitration before Mr. Dennis Jenkins. During the hearing of the matter, KH produced the evidence of three expert witnesses and its managing member, Mr. Heny. Mr Heny’s evidence was subject to lengthy and exhaustive cross-examination. Mr. Winterbach, on the other hand, gave evidence in chief, but walked out shortly after cross examination commenced, refusing to return even after being offered a further opportunity to do so, alleging that the Mr. Jenkins was biased against him.

Despite this, Mr. Jenkins accepted the evidence provided by Mr. Winterbach, in his evidence in chief, awarding KH the sum of R 399 150.00 on condition that it completed the works to Mr. Winterbach’s satisfaction.

Dissatisfied with this, KH sought an order, from the Eastern Cape High Court, setting aside the award and appointing a new arbitrator to determine the dispute between the parties afresh.

On appeal to the full bench, the court found that Mr. Jenkins had, in terms of Sub-Section 33(1)(b) of the Arbitration Act:

  1. Committed a gross irregularity in the conduct of the proceedings, when he relied upon the evidence of Mr. Winterbach, despite it being untested by cross examination. Cross-examination of evidence is a right, which goes to the root of a fair hearing; and
  2. Exceeded his powers by ordering KH to complete the works. In his defence and counterclaim, Mr. Winterback sought only repayment of the alleged overpayment and damages. He did not ask for specific performance i.e. the completion of the works. The jurisdiction of an arbitrator is limited to matters pleaded and Mr. Jenkins did not have jurisdiction to decide on whether specific performance was warranted or not.

The appeal, therefore, succeeded and the parties were directed to refer the dispute to a new arbitrator for determination. Mr. Winterbach was ordered to pay the wasted costs of the arbitration, the costs of the appeal and the review application before the court a quo.

Author: Michelle Kerr, senior associate