Rabinowitz v Levy and Others (Case no 1276/2022) [2024] ZASCA 8 (26 January 2024)

Gary Rabinowitz (the appellant) sold shares in SDK Agencies (Pty) Ltd, a company that made and sold cosmetics, to Colin Levy (the first respondent) and Daniel Mpande (the second respondent), with Triton Pharmacare (Pty) Ltd (the third respondent) acting as the surety for the buyers' obligations.

The sale agreement, concluded on 30 June 2017, stipulated that disputes arising from the agreement would be referred to arbitration. The agreement also included a provision for the determination of the aggregate value of the stock, which was initially recorded as R6,197,211.14 at the time of the agreement.

Disputes arose regarding the sale, particularly concerning the value of the stock and alleged fraudulent misrepresentations by the seller. These disputes were referred to arbitration, with Hilton Epstein SC (the fourth respondent) appointed as the arbitrator. In the arbitration proceedings, the seller claimed the balance of the purchase price, while the buyers raised defenses and counterclaims, including a claim that the actual value of the stock was only R2,239,002.00, as reflected in the audited financial statements, rather than the R6,197,211.14 stated in the sale agreement.

The arbitrator dismissed the allegations of fraud, upheld a counterclaim related to an undercharge to Clicks (the Clicks claim), and found that the purchase price should be reduced by R3,958,209.14 due to the discrepancy in the stock value. The arbitrator also dismissed further counterclaims and directed the buyers and surety to pay the seller's costs of the arbitration.

Dissatisfied with the arbitrator's award, the buyers sought a review in the Gauteng Division of the High Court, Johannesburg, which was dismissed. The buyers then appealed to the full court, which found that the arbitrator had committed gross misconduct by not convening a further hearing on the stock claim as allegedly agreed upon by the parties in an email exchange. The full court set aside the arbitrator's award and ordered that the arbitration start afresh before a new arbitrator.

The seller appealed the decision of the full court to the Supreme Court of Appeal, which is the subject of the judgment provided.

The ratio decidendi of the Supreme Court of Appeal's decision is that an arbitrator's award should not be reviewed and set aside for alleged procedural irregularities unless there is a gross irregularity in the conduct of the arbitration proceedings that results in the aggrieved party not having their case fully and fairly determined. The court emphasised that the arbitrator's interpretation and application of the terms of the arbitration agreement and related documents, including an email exchange between the parties, are final and not subject to review unless the arbitrator has misconceived the nature of the inquiry or exceeded their powers in such a way that it results in a denial of a fair hearing.

In this case, the court found that the arbitrator did not commit a gross irregularity by not convening a further hearing on the stock claim, as the quantum of the claim was clearly based on the evidence presented. The court also determined that the arbitrator did not stray beyond the pleadings or exceed his powers by referencing an "innocent misrepresentation" in his award, as the decision was ultimately based on a breach of contract, which was the cause of action pleaded. Lastly, the court held that the arbitrator did decide the issue of the missing assets claim and did not fail to carry out his mandate.

Therefore, the core legal principle is that courts should be cautious in intervening in arbitration awards and should uphold the intentions of the parties to resolve disputes through arbitration, which is intended to be a fast and cost-effective alternative to litigation. Arbitrators have broad discretion in conducting arbitration proceedings, and their decisions on the merits are not reviewable errors unless they result in procedural unfairness or constitute a gross irregularity.

In its reasoning process, the referred to the following cases:

Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and another [2009] ZACC 6; 2009 (4) SA 529 (CC). This case was used to emphasise the principle that parties who submit to arbitration intend for the process to be fair and that courts should interpret the grounds for reviewing arbitration awards reasonably strictly, especially in the context of private arbitration. The court in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews also cautioned against courts being too quick to find fault with the conduct of arbitration proceedings, as this could defeat the goals of private arbitration.

Telcordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 (SCA). This case was cited to clarify that errors on the merits of an arbitration award are not reviewable and that a gross irregularity must relate to the conduct of the arbitration proceedings, not the result.

The court also referred to the following cases to elucidate the concept of gross irregularity and the limits of an arbitrator's powers:
Goldfields Investment Ltd and another v City Council of Johannesburg and another 1938 TPD 551; Ellis v Morgan; Ellis v Dessai 1909 TS 576; Bester v Easigas (Pty) Ltd and another 1993 (1) SA 30 (C); Palabora Copper (Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd [2018] ZASCA 23; 2018 (5) SA 462 (SCA) and Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd and others 2013 (6) SA 520 (SCA).

This quote encapsulates the court's stance on the limited scope of review for arbitration awards and underscores the principle that not all errors in an arbitration award are grounds for review. The court is making it clear that the review process is not a backdoor appeal mechanism and that the integrity of arbitration as a dispute resolution process must be maintained by respecting the finality of arbitrators' decisions, except in cases of gross irregularity in the conduct of the proceedings.