LESOTHO
IN THE COURT OF APPEAL OF LESOTHO
HELD AT MASERU
C OF A (CIV) No.40/2024
CCA/0088/2021
In the matter between:
STYLE FORM BUILDING
(LESOTHO) (PTY) LTD APPELLANT
AND
H.F.M CONSTRUCTION GLASS
AND ALUMINIUM (PTY) LTD 1ST RESPONDENT
LEARNED ARBITRATOR 2NDRESPONDENT
Coram: MOSITO P
SAKOANE CJ
CHINHENGO AJA
Heard: 15 October 2024
Delivered: 1 November 2024
Summary
A review application to set aside a private arbitration award can only be made in terms of s 34(1) of the Arbitration Act 1980; Appellant applied for a review by the High Court of such award under s 34(1)(b) of the Act alleging that the arbitrator had committed a gross irregularity in that there was no evidence on which he could have awarded damages for breach of contract in favour of 1st respondent; High Court finding that evidence was led from an expert on behalf of 1st respondent, and arbitrator’s assessment and conclusion based on that evidence was beyond criticism- Appellant had failed to show that a gross irregularity had occurred in the conduct of the arbitral proceedings and dismissed the review application; On appeal, Court upholding decision of High Court and dismissing the appeal with costs
JUDGMENT
CHINHENGO AJA:-
Introduction
[1] The appellant and 1st respondent were parties to a construction contract in terms of which any dispute which arose between them in relation to that contract must be submitted for arbitration and adjudicated upon by a person mutually appointed as the arbitrator by the parties. As it turned out, a dispute indeed arose when the appellant terminated the contract, and the 1st respondent claimed that the appellant was in breach and claimed damages. The dispute was referred for arbitration before the 2nd respondent.
[2] The arbitrator is cited only as “Learned Arbitrator.” In proceedings such as these, an arbitrator must be cited by his name with the appellation “N.O.” to indicate that he is sued in his official capacity. The parties agreed that that is the proper way of citing an arbitrator. I accordingly changed the citation.
[3] In the arbitration proceedings, the 1st respondent claimed from the appellant damages for breach of contract in the sum of M1 427 325.00. The arbitrator awarded damages in favour of the 1st respondent in the sum of M 817 860.83. The appellant was aggrieved by the award and applied on motion for it to be reviewed and set aside by the High Court.
Relief sought in High Court and decision thereon
[4] The relief sought in the notice of motion is the following:
“a) That the 2nd respondent be ordered to submit to the Registrar of this honourable court record of proceedings in terms of which the 2nd respondent made an award in the arbitration proceedings between the applicant and the 1st respondent.
b) The 2nd respondent’s decision to award the 1st respondent an award of damages in the amount of eight hundred and seventeen thousand eight hundred and sixty Maloti and eighty-three lisente (M817 860.83) be corrected, reviewed and set aside.
c) The court substitute the award of the learned arbitrator with another for absolution from the instance.
d) In the event that the court finds the review proceedings to have been filed late, the applicant be granted condonation.
e) The 1st respondent should pay costs of suit in the event of opposition.”
[5] The prayers (a) and (d) in the notice of motion are no longer relevant in the appeal. Prayer (c) was abandoned at the hearing of the appeal but reliance on it tended to crop up several times in the heads of argument filed before the abandonment. That leaves prayer (b) as substantive relief sought, and the issue of costs.
[6] The High Court (Mathaba J) dismissed appellant’s review application with attorney and client costs, confirmed the award of damages in the sum of M 817 860.83 with interest thereon at the rate of 7.5% per annum calculated from the end of December 2021, and registered the award as an order of the High Court in terms of s 32(1) of the Arbitration Act 1980 (“the Act”). The registration of the award was pursuant to an application therefor by the 1st respondent, which, curiously, the appellant did not oppose.
Appeal
[7] The appellant was aggrieved by the decision of the High Court and appealed on the following grounds-
“1. The learned Judge erred in confirming the quantum [of damages] against clear evidence that not only were the damages not quantified but the claimant (first respondent) refused to quantify damages that it claimed.
2. The learned Judge erred in not upholding the review and granting appellant an order of absolution from the instance.
3. The learned Judge erred in not upholding the review on the basis that the award made by the learned arbitrator was not supported by any evidence which gives it a factual basis such that it was a grave irregularity.”
[8] The second ground of appeal was, as I have earlier stated, not pursued in this Court. The remaining grounds of appeal amount to no more than one such ground, which, to paraphrase it, is that the judge failed to appreciate that the arbitrator committed a grave or several grave irregularities in the conduct of the proceedings. The appellant averred in the founding affidavit[1] the “the grounds the applicant relies upon to have the award set aside are numerous.” However, the main gross irregularity alleged, it seems to me, is that, whereas there was clear evidence that the damages were not quantified and that the award was not supported by any evidence, the award stood vitiated. Before this Court the appellant set out the issues for determination as follows[2] -
“9. It will be submitted that-
(a) if a party refuses to quantify its damages and the arbitrator awards it damages notwithstanding the refusal to quantify damages that is a reviewable irregularity;
(b) if a party uses a scale and/or a rate not agreed upon in calculating its damages and the arbitrator awards it damages that is a reviewable irregularity.
10. The above issues are decisive of this appeal as they are the nub of appeal. The evidentiary facts on record are forming the basis for review.”
[9] The appellant narrowed down the issues for consideration to one issue in substance, being the calculation of damages. It is readily to be observed that the appellant does not adopt the language of the relevant statute in respect of the degree of irregularity required. As can be seen from the paragraphs quoted above, appellant uses the words “reviewable irregularity” whereas the Act, in s 34(1)(b), requires “gross irregularity” as the threshold for setting aside an award.
Relevant provisions of Arbitration Act
[10] Before dealing with the alleged irregularities and deciding whether they were gross and whether the judge a quo erred and misdirected herself as contended by the appellants, it is necessary to have regard to some provisions of the Act that impact on any review of an award by the High Court.
[11] Section 29 of the Act provides that, unless the arbitration agreement provides otherwise, an award shall, subject to the provisions of this Act, be final and not subject to appeal and each party to the reference shall abide by and comply with the award according to its terms. This provision is founded on a recognition and acceptance that private arbitration is contractual in nature and parties must therefore be bound to their agreement. That is why s 34(1) of the Act provides for the only grounds upon which an arbitration award may be set aside. It provides as follows -
“34. Setting aside of award
(1) Where-
(a) any member of an arbitration award 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) and award has been improperly obtained,
the court may, on application of any party to the reference after due notice to the other party or parties, make an order setting the award aside.”
[12] No allegation of misconduct was made against the arbitrator nor was it alleged that he exceeded his powers or that the award was improperly obtained. The case against the award is singularly that the arbitrator committed a gross irregularity in assessing the quantum of damages. The gross irregularity, as envisaged by s 34(1)(b), is confined to the conduct of the arbitration proceedings by the arbitrator. Gross irregularity is a matter of procedure and relates to the method of conducting the arbitration.
[13] The basis of ‘gross irregularities’ allegedly committed by the arbitrator are itemised. First, the quantum awarded far exceeded the amount of profit that the 1st respondent could ever have made on the contract. He could only have made a profit of 20% on the contract price of M1 427 325.00, which is the sum of M285 465. In buttressing this point the appellant said “It is an irregularity because even when the contract had fulfilled its own length, the 1st respondent could not have made money in excess of … M285 465…. On this ground alone the award should be set aside.”
[14] Second, the 1st respondent failed to quantify the damages and actually refused to do so, and the arbitrator committed an irregularity when he made the award without regard to this failure or refusal.
[15] Third, the arbitrator failed to recognize that any payment to the 1st respondent was to be based on periodic payment certificates as provided in the contract: no final payment certificates were relied on.
[16] Fourth, the arbitrator ignored the fact that the appellant was justified in terminating the contract when the 1st respondent fell behind on the scheduled time for completion of the construction works under the contract due to staffing problems he encountered.
[17] Fifth, the arbitrator “erred in ignoring that the 1st respondent had committed a breach of contract which forced the applicant to terminate it because its founding directors, who are also shareholders, were fighting” among themselves.
[18] Sixth, the arbitrator failed to reflect properly on the evidence and the law and arrived at a decision not supported by the evidence. Had he so reflected he would not have made the award.
[19] In summing up its case, the appellant stated that “procedural errors committed are glaring” and that – “there is no reasonable decision maker who could decide that a party should get more reward than the reward it would have got if the contract was not terminated. This is not in line with good commercial practices.” Appellant however conceded that the 1st respondent was entitled to an award of damages in the sum of M139 641.51. That is the quantum of damages appellant admits to owe to the 1st respondent.
[20] The above are the ‘irregularities’ that appellant’s counsel rehashed in his heads of argument and oral submissions in this Court. Fundamentally, appellant’s counsel approached this matter as if it was an appeal against the decision of the arbitrator and not an appeal against the decision of the High Court. In the heads of argument counsel submitted:
“23. We submit that the current award, when viewed in line with the established principles and evidence, is far divorced from the practical reality. It amounts to gross unreasonableness. There is no arbitrator who can make such an award. It is reviewable.
24. We submit that, in casu, the irregularity remains outstanding in view of the fact that it could be good to say that the awarded damages have been thumb sucked. It is not a proper approach to awarding of damages. It is an incurable irregularity.
25. We submit that the court shall in the circumstances interfere with the learned arbitrator’s award of damages.
26. All of which we respectfully submit.”
[21] To further show that appellant’s counsel treated this appeal as if it were an appeal against the decision of the arbitrator on the merits, he relied on case authorities germane to an appeal against a court’s findings on the merits. In this case what had to be interrogated on appeal was not so much the merits of arbitral award itself but mainly, if not exclusively, the High Court judgment, which was a review decision. There is very little, if anything, argued by appellant’s counsel against the judge’s decision on review. If, by focussing on the award as wrong on the merits he intended to show that the judge a quo also erred in not recognising that the award was wrong, then he did not do a good job of it. All he had to do was to show that the arbitrator committed a gross irregularity in the conduct of the proceedings.
[22] The 1st respondent took up two preliminary points against the appeal. It pointed out that the record of proceedings before the arbitrator is replete with typographical errors and omissions such that it is difficult, if not impossible, to comprehend the evidence tendered; and that the appellant did not provide security to the Registrar of the High Court for the respondents’ costs of appeal. They did not seek any specific relief and the appellant did not deal with these preliminary points at the hearing. I must say that indeed there are errors and omissions in the record that support the 1st respondent’s observation. The 1st respondent correctly understood the appellant’s case as centred on three issues, namely that the gross irregularities consist of the failure to quantify the damages, the award of an amount as damages far exceeding the profit that would have been made on the contract, and that the arbitrator’s decision was not supported by the evidence.
[23] First respondent’s counsel submitted in the written heads of argument that the arbitrator’s award was thorough and well-reasoned, in that he considered all material facts and relevant legal principles. The review application was bound to fail because it fell short of the requirements for setting it aside as provided in s 34 of the Act. He set out what he understood to be the basis of the dismissal of the review application by the High Court. He submitted that the dismissal was based on a finding that appellant’s challenge of the award was premised on the arbitrator’s conclusions on the facts and the law and did not impugn the process followed in the conduct of the proceedings. He opined that the court also dismissed the review application upon a finding that nothing was placed before it by way of pleadings to show that a gross irregularity occurred in the conduct of the arbitration and consequently no case had been made by the appellants under s 34 of the Act.
[24] First respondent’s counsel also submitted that the decision of the High Court is correct because, in a review application, a court does not concern itself with the merits of the decision under review but with the process of arriving at it, or, to put it differently, it is concerned with the legality of the decision and not its merits. The appellant’s contention in the High Court and in this Court is that the arbitrator’s conclusion is not supported by the evidence tendered in relation to the assessment of the damages awarded. That is why in the first place it entreated the court to grant an order of absolution from the instance, although in light of the contrary submissions by 1st respondent and questions put to him by the Court, appellant’s counsel abandoned that argument. To drive home his point leading to the abandonment of the absolution argument, 1st respondent’s counsel had referred to Moonlight Taxis v Seboka.[3] and School Board of Mapoteng High School v Teaching Service Commission & 5 others[4], both of which emphasise that “gross irregularity is a process standard” in terms of s 34 of the Act. This is correct. A review of arbitration decisions is governed solely by the Act, in particular by s 34 thereof. The grounds of review are therefore statutorily defined and circumscribed.
[25] The record of proceedings before the arbitrator shows that evidence was adduced by the 1st respondent through an expert, Mokoatsi Lebola, who undertook an evaluation of the work done by the 1st respondent before the contract was terminated and produced a report. The expert witness also gave oral evidence during the proceedings. The arbitrator considered the expert witness’s evidence and relied on it for his conclusion. The appellant did not agree with the evidence of the expert witness. That alone does not mean that the evidence given was not sufficient and, worse still, it does not mean that the acceptance of the evidence after assessment can be construed as a gross irregularity in the conduct of the proceedings.
[26] The gross irregularity under s 34 should be construed restrictively in order to preserve and recognize the basic objective of finality in all arbitrations. The defence is applicable only where some fundamental principle in the assessment of the evidence is violated. An award will not be set aside merely because the reasoning or conclusion of the arbitrator is wrong in fact or in law. Where, however, the reasoning or conclusion in an award goes beyond mere faultiness or incorrectness and constitutes a palpable failure to understand or assess the evidence that is so far reaching in its defiance of principles involved that a sensible and fair minded person would consider that there has been a complete failure to assess the evidence, then it would be said a gross irregularity has occurred. Thus, it is only where the arbitrator has not applied his mind to the evidence before him or has totally misunderstood it, and the resultant conclusion reaches the point where it can be regarded as a gross irregularity in the conduct of the arbitration that the award may be set aside - cf Zimbabwe Electricity Supply Authority v Maposa[5], where the court was dealing with the defence that the award was contrary to public policy.
[27] The learned judge a quo recognised the need to confine her consideration of appellant’s case within the four corners of s 34 of the Act. The judge accepted the statement in Lefuno Mphaphuli and Associates (Pty) Ltd v Andrews & Another[6] that the grounds for setting aside an award must be construed strictly, and quoted the following passage in M&C Construction International v Lesotho Housing and Land Development Corporation[7] where this Court said-
“[18] The approach to be adopted when asked to set aside an award by an arbitrator in a private arbitration was explained by the South African Appellate Division in Amalgamated Clothing and Textile Workers Union of SA v Veldspun (Pty) Ltd 1994 (1) SA 162 (A) at 169B-D as follows-
‘Before considering these grounds, it is well to emphasize that the basis upon which a court will set aside an arbitrator’s award is a very narrow one. The submission itself declared that the arbitrator’s determination ‘shall be final and binding on the parties.’ And s 28 of the Arbitration Act provides that an arbitrator’s award shall ‘be final and not subject to appeal and each party to the reference shall abide by and comply with the award in accordance with its terms.’
It is only in cases which fall within the provisions of s 33(1) of the Arbitration Act that a court is empowered to intervene. If an arbitrator exceeds his powers by making a determination outside the terms of the submission, that would be a case falling under s 33(1)(b). As to misconduct, it is clear that the word does not extend to bona fide mistakes the arbitrator may make, whether as to fact or law. It is only where a mistake is so gross or manifest that it would be evidence of misconduct or partiality that a court might be moved to vacate an award. Dickenson & Brown v Fisher’s Executors 1915 AD 166 at 174-81. It was held in Donner v Ehrlich 1928 WLD 159 at 161 that even a gross mistake, unless it establishes mala fides or partiality, would be insufficient to warrant interference.”
[28] The learned Judge a quo found that the grounds upon which the appellant impugned the arbitrator’s award were not an attack of the process in the conduct of the proceedings but were directed towards the conclusion reached on the evidence and the law. They, accordingly, disregarded the fact that the arbitrator comprehensively considered the evidence before him. The learned judge was entirely correct.
[29] I cannot say that the judge a quo was correct in dealing with the interest rate applied by the arbitrator and reducing it from 12% per annum to 7.5% per annum on the strength of Zing Long Enterprises (Pty) (Ltd v Zhong Sing (Pty) (Ltd & Another[8], a correct decision on its own, as that interfered with the award on the merits. However no cross-appeal was noted against the reduction of the rate of interest. It unnecessary to interfere with that part of the order.
[30] I have come to the conclusion that the appeal cannot succeed. An arbitration award may be set aside in terms of s 34(1) of the Act on very circumscribed grounds. Where the challenge to the award is based on s 34(1)(b) (gross irregularity) the threshold is very high, as set out in paragraphs 26 and 27 above. The appellant failed to meet that threshold. The High Court order is correct and may not be interfered with. Costs must follow the result.
[31] In the result it is ordered that the appeal is dismissed with costs.
_________________________
M H CHINHENGO
Acting JuSTICE of Appeal
I agree:
___________________________
K E MOSITO
President OF THE COURT OF APPEAL
I agree:
__________________________
S P SAKOANE
Chief Justice
FOR APPELLANT: Adv. L a Molati
FOR 1ST RESPONDENT: Adv. Z Mda with Adv. Molise