THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Not Reportable
Case No: 995/16

In the matter between:

STATE INFORMATION TECHNOLOGY

AGENCY SOC LIMITED

APPELLANT

and

ELCB INFORMATION SERVICES
(PTY) LTD

FIRST RESPONDENT

LEON DICKER NO

SECOND  RESPONDENT

Neutral citation: State Information Technology Agency SOC Limited v ELCB
Information Services (Pty) Ltd & another (995/16) [2017] ZASCA 120 (22
September 2017)

Coram:
Shongwe AP, Majiedt JA and Plasket, Tsoka and Rogers AJJA

Heard:
18 August 2017

Delivered: 22 September 2017

Summary: Arbitration Award – review – arbitrator alleged to have committed
gross irregularities – s 33(1)(b) of the Arbitration Act 42 of 1965 – gross
irregularities not proved – appeal dismissed.

ORDER
________________________________________________________________

On appeal from: Gauteng Division of the High Court, Pretoria (Mabuse J,
sitting as court of first instance):
The appeal is dismissed with costs.

JUDGMENT
________________________________________________________________

Shongwe AP (Majiedt JA and Plasket, Tsoka and Rogers AJJA
concurring)
[1] This appeal arises from a judgment and order of the Gauteng Division of
the High Court, Pretoria (Mabuse J) in which it dismissed a review application
brought by the appellant, State Information Technology Agency SOC Ltd
(SITA), against the respondents, ELCB Information Services (Pty) Ltd, and
Leon Dicker NO. The court below also granted a counter-application by the first
respondent which sought an order that the arbitrator’s award granted on 31
March 2014 be made an order of court in terms of s 31(1) of the Arbitration Act
45 of 1965 (the Act). (I shall refer to the parties in this judgment as appellant
and respondent for ease of reference, as the second respondent – the arbitrator -
did not participate in the hearing or in this appeal).

[2] Aggrieved by this decision, the appellant applied for leave to appeal on
the grounds that the court a quo had erred in the following respects. (It is
neccesary to mention the grounds in full for reasons that will emerge later in the
judgment).
‘1. In not reviewing and setting aside the second respondent's arbitration award against the
applicant.

2. In not finding that the second respondent committed gross irregularities in the conduct of
the arbitration proceedings between the applicant and the first respondent.
3. In not deciding at all the question whether the second respondent committed gross
irregularities in the conduct of the arbitration proceedings between the applicant and the
first respondent.
4. In not finding that the Promotion of Administrative Justice Act 3 of 2000 did not apply
where an organ of the state seeks to set aside its own conduct and that the 180 days period
provided for therein did not apply thereto.
5. In not following the decision of this Court per Southwood J in Telkom v Merid Trading’.
The appellant did not end there – it added the following in its application for
leave to appeal:
‘TAKE FURTHER NOTICE THAT the learned judge's judgement did not resolve all the
issues in dispute between the parties insofar as the learned judge did not decide the question
whether the second respondent committed gross irregularities in the conduct of the arbitration
proceedings between the applicant and the first respondent and that this issue on its own
justifies the hearing of an appeal’.
The court below dismissed the application for leave to appeal in respect of
grounds (1), (2), (4) and (5), but granted leave ‘in respect of the ground that the
court did not deal with the arbitration issue in its written judgment’.

[3] The background facts are that the appellant and the respondent concluded
two agreements. In terms of the first agreement, concluded on 12 March 2006,
the respondent was appointed and required to develop and implement an
information management system for the South African Social Security Agency
(SASSA). In short it was for the procurement of information technology goods
and services on behalf of the appellant and some other government departments.
The second agreement was purportedly concluded pursuant to a letter dated 11
January 2007 from the Superintendent-General of the Eastern Cape Department
of Health, requesting the appellant to appoint the respondent to develop a
records management system for that department. The appellant has not been
able to locate the signed copy of the second agreement.

[4] Clause 25 of the first agreement provided that if a dispute between the
parties was not resolved, such a dispute shall be referred to arbitration which
would be conducted in accordance with the rules of the Arbitration Foundation
of South Africa (AFSA). The respondent relied on an unsigned copy of the
second agreement, which it alleged was concluded by the parties. However, the
appellant denied the conclusion of the second agreement in the absence of
evidence showing that such an agreement was indeed concluded between the
parties. For this reason, the appellant contended that there was no arbitration
agreement to arbitrate the respondent’s second claim. Therefore, the appellant
argued, that it was legally incompetent to conduct arbitration proceedings in
relation to a claim founded on the second agreement.

[5] As a result of the first agreement, the appellant and the respondent
concluded and signed an arbitration agreement on 13 March 2006. It is
important to record that the appellant fulfilled its obligations in respect of both
agreements and duly paid a substantial portion of what was due to the
respondent. In terms of the first agreement R220 million was payable in
aggregate by the appellant for the services to be rendered by the respondent and,
in terms of the second agreement the sum of R20.1 million in aggregate for the
services. The respondent, likewise performed all its contractual obligations in
terms of both agreements, having rendered the professional services to the
appellant. During the duration of the agreements, the respondent submitted
various invoices to the appellant for payment, for which the appellant effected
substantial payments. Eventually, on 11 March 2013 the respondent sent a letter
demanding payment, failing which summons would be issued. On 21 June
2013, the respondent sent another letter to the appellant requesting that the
matter be referred to mediation as agreed.

[6] The respondent lodged a statement of claim as per the arbitration
agreement and a pre-arbitration meeting was held on 1 October 2013. Both
parties were represented by counsel and agreed on various topics including that
there was an arbitrable dispute, that the issues in dispute would be those as
defined in the pleadings, the delivery of processes, pleadings and documents,
expert witnesses, rules of evidence, onus and duty to begin and all other
relevant topics. It was agreed that the arbitration would be held on 21 January
2014 to 24 January 2014. The appellant reserved its right to raise an objection to
the jurisdiction of the arbitrator in respect of both claims by no later than 16:00
on 11 October 2013. The objection was never raised. It was also agreed that the
appellant would deliver its statement of defence and any counterclaim by no
later than 16:00 on 8 November 2013. These documents were never delivered.

[7] On 21 January 2014, the hearing was postponed to 3 March 2013 because
of the appellant’s failure to file its statement of defence. On this date the
appellant brought an application for an order declaring both agreements
constitutionally invalid, unlawful and unenforceable and for an order that the
arbitration proceedings be stayed or postponed pending the final determination
of the validity of the agreements. The essence of this late application was that
both agreements were in contravention of s 217 of the Constitution in that the
appellant did not comply with the procurement procedures applicable to state
procurement of goods and services in entering into agreements. This
constitutional point had never previously been raised. On 4 March 2014 the
arbitrator ruled against the appellant, thus dismissing the application of
invalidity with costs on the attorney and client scale. At this juncture the
appellant and its legal representatives left the proceedings.

[8] On 31 March 2014 the arbitrator made an award, without giving reasons
after having considered the evidence of the respondent, and having heard

counsel for the respondent. As stated, the appellant and its legal representatives
had left the hearing and consequently no evidence was led on behalf of the
appellant. The appellant was ordered to pay certain amounts plus interest to the
respondent and the costs of arbitration. On 9 May 2014 the appellant filed an
application wherein it sought an order reviewing and setting aside the
arbitration award and also declaring both agreements concluded between the
appellant and the respondent constitutionally invalid and unenforceable. As
indicated above in paragraph 1 of this judgment, this application was dismissed
and the counter-application by the respondent seeking that the award be made
an order of court was granted.

[9] Leave to appeal in respect of grounds (1), (2), (4) and (5), as indicated in
paragraph 2 above, was dismissed. The court below reasoned that there were no
reasonable prospects of success. However, it granted leave on the ground that it
did not deal at all with the arbitration issue in its written judgment. The notice
of appeal was couched in a manner suggesting that the appeal is against the
reasons for the judgment and not against the order or orders granted by the court
below. The ambiguity created by the notice of appeal resulted in the registrar of
this court sending a letter to the parties to prepare and file supplementary heads
of argument dealing with what appeared to be a defective notice of appeal. In
the respondent’s supplementary heads, the respondent contended that the appeal
should be struck from the roll. It argued that to allow the appeal to be heard in
circumstances where the court below did not deal at all with the arbitration
dispute, would mean that this court would be required, as a court of appeal, to
determine the dispute without the benefit of the reasoning of the court below. It
contended further that it would be inappropriate, even if there was a valid notice
of appeal, for this court to determine the arbitration dispute as a court of first
and last instance.

[10] The appellant on the other hand contended that, in terms of the Supreme
Court of Appeal rule 7(3), the notice of appeal must state what part of the
judgment or order is appealed against and state the particular respect in which
the variation of the judgment or order is sought. The appellant referred this
court to Makings v Makings 1958 (1) SA 338 (A) at 341F and De Jager v Diner
& another 1957 (3) SA 567 (A) at 573, which cases concluded that the object of
the rule[s] is to avoid embarrassment and ambiguity especially ‘where the only
issue involved is apparent on the record and there can be no embarrassment or
ambiguity, a strict compliance with the Rule may be waived’. The appellant
contended further that the only issue was whether the arbitration award fell to
be reviewed and set aside on the grounds that the arbitrator committed gross
irregularities.

[11] After this preliminary question was argued by both counsel, this court
heard the parties on the merits, ie whether the arbitrator made himself guilty of
gross irregularities which justified the reviewing and setting aside of the award.
We decided to hear the merits for convenience and having considered that it
would be in the interest of justice to do so. We were also mindful of the fact that
the respondent conceded that it was not embarrassed by the alleged defect in the
notice of appeal.  In its amended notice of appeal the appellant specifically
abandoned the ground regarding the constitutional invalidity of both
agreements.

[12] I now turn to discuss whether or not the arbitrator committed gross
irregularities. The appellant raised five grounds before us on which it contended
that the arbitrator committed gross irregularities. These are: (a) that the
appellant was excluded from participating in the arbitration proceedings – thus
the appellant was not given a hearing; (b) that the second agreement was not
signed by the appellant and thus never came into existence; (c) that the

arbitrator exceeded his powers when he awarded interest on the sum of
R2 911 676,64 with effect from 11 March 2013 because there was no demand
made for payment of the said sum on that date; (d) that the arbitrator failed to
properly apply his mind to the evidence placed before him; (e) that the arbitrator
contravened clause 23.6 of the second agreement ie by failing to give written
reasons.

[13] Having considered all the grounds relied on for the setting aside of the
award, and having heard both counsel, I conclude that none of the grounds
raised are valid and meritorious. My reasons follow.

That the appellant was excluded from the arbitration proceedings.
[14] The appellant was not excluded from the arbitration proceedings. Its
representatives chose to leave the hearing after the arbitrator dismissed its
invalidity application. The appellant was required to submit a statement of
defence after the respondent had submitted its statement of claim as agreed
during the pre-arbitration meeting. But the appellant failed to do so. The
arbitrator ruled that the appellant was in default after several opportunities and
extensions had been granted to it. The appellant was in fact given an
opportunity to cure its default by making an application to that effect before the
arbitration hearing started. The appellant failed to do so. On 3 March 2014,
when the arbitration proceedings were scheduled to resume, the appellant was
present and represented by counsel. The appellant was still in default and still
entitled to apply to cure its default, but again failed to do so. Instead the
appellant launched an ill-conceived application seeking the declaration of the
invalidity of the two agreements and alleged that a proper procurement process
had not preceded the conclusion of the two agreements. As stated (in para 7
above) this was the very first time since the agreements were concluded seven
to eight years previously that the appellant alleged the constitutional invalidity

and unlawfulness of the agreements. The ancillary relief sought was the staying
of the arbitration proceedings pending the final determination of the invalidity
by a court. This was in my view, a poorly disguised and unsubstantiated
application for a postponement. The arbitrator, correctly so, in my view, refused
both the primary and secondary relief sought. The arbitrator cited article
10.6.2.1 read with 10.2.6.2 of the Commercial Arbitration Rules, which
empowered him to ‘proceed with the arbitration in the absence of, or without
further hearing, the defaulting party, to its final conclusion …’. The appellant
left the arbitration proceedings, on its own volition, therefore it was not
excluded as alleged. The appellant’s counsel was unable to direct our attention
to any part of the transcript of the arbitration hearing in which the arbitrator
supposedly made a ruling excluding the appellant from the hearing.

That the second agreement was unsigned by the appellant
[15] The respondent contended that there was a written and signed second
agreement between the parties. The respondent produced the copy which it had
signed and which, so it alleged, was probably thereafter signed by the appellant.
The respondent set out various circumstances pointing to the likelihood that the
appellant had indeed signed the agreement: the respondent had delivered its
signed version to the appellant; the agreement was thereafter implemented over
a period of more than five years; substantial sums were paid to the respondent;
the appellant would have undergone annual audits. The appellant on the other
hand contended that it was unable to locate a signed copy. The appellant did not
say that a signed version never existed, only that it could not be located. The
principle espoused in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd
1984 (3) SA 623 (A), becomes relevant and applicable. The appellant’s version
is a bare denial of the existence of the second agreement. The appellant did not
file an affidavit by the officials who would have been responsible for signing
the agreement in 2007 and would have direct knowledge of whether the

agreement was signed. The appellant contended that even if there was a signed
agreement, it would still be invalid due to the fact that it was concluded in
contravention of s 217 of the Constitution. It is not necessary to decide this
aspect as the appellant has abandoned the constitutional validity point. Applying
the Plascon Evans principle, it cannot be said that the arbitrator acted grossly
irregular by relying on an unsigned agreement. The respondent’s version to the
effect that the second agreement was probably signed was not one which could
be dismissed out of hand on the papers. What is more convincing is that the
appellant complied with all the obligations in terms of the second agreement
and at no stage did the appellant accuse the respondent of not complying with
its obligations until the respondent demanded payment of the balance of the
contract price. There is no merit on this point.

The arbitrator exceeded his powers by awarding interest
[16] The respondent claimed the sum of R2 911 676,64 plus interest with
effect from 11 March 2013. The appellant contended that interest cannot be
calculated with effect from 11 March 2013 as there was no letter of demand
from the respondent. It is not correct that there was no letter of demand. On 16
August 2012 the respondent addressed a letter of demand to the appellant. On
11 March 2013 a further letter of demand was sent to the appellant. In my view,
these are proper letters demanding payment, failing which legal proceedings
were to follow. The fact that the appellant does not recognise these letters as
demanding payment is irrelevant. The facts speak for themselves. The
respondent even provided its banking details in the letter of demand dated 11
March 2013, and mentioned words to the effect that if the money is not
deposited, summons will be issued against the appellant.

The arbitrator failed to apply his mind

[17] It is significant to note that the appellant was given more than ample
opportunity to cure its default. It failed to make use of the opportunities. The
appellant was in default and left the arbitration proceedings on its own volition.
The appellant’s statement of defence would have clarified its position and
highlighted any specific aspects which required the arbitrator’s particular
attention. The arbitrator specifically mentioned in his award that ‘[h]aving
considered the evidence [which was undisputed] and having heard counsel … I
make the following award’. Whether the arbitrator came to an incorrect
conclusion is irrelevant in review applications. It would appear that the
appellant conflates appeals and reviews thus blurring the difference. A review
of an arbitrator’s award does not deal with the merits, but the manner in which a
decision was reached. It does not concern whether the decision was right or
wrong. An appeal, on the other hand, amounts to a re-hearing of the matter and
the appeal tribunal is restricted to the record of the proceedings before it, unless
the statute provide otherwise. (See Telcordia Technologies Inc v Telkom SA Ltd
2007 (3) SA 266 (SCA) para 85 where this court held that an arbitrator ‘has the
right to be wrong’.) Therefore this ground is misconceived as a ground to have
the impugned award reviewed and set aside.

Contravention of Clause 23.6 of the Second agreement – failure to supply
written reasons
[18] It is incorrect to characterise the arbitrator’s conduct as a failure to give
written reasons upon which the award was based and also to conclude that the
failure constituted misconduct and a gross irregularity. The fact of the matter is
that the arbitrator did provide written reason upon which the award was based;
although the written reasons were provided outside the time period agreed to by
the parties during the pre-arbitration meeting. Clause 13.1 of the pre-arbitration
meeting reads as follows:

’13.1 After the conclusion of the arbitration proceedings, the arbitrator will finalise his award,
with reasons, within two months after having heard closing arguments’.
The award itself, without written reasons was handed down on 31 March 2014.
There is no evidence as to the date on which the written reasons were issued,
save for uncontested correspondence sent to the parties on 10 June 2014
advising them that the arbitrator has fallen ill and on 13 June 2014 wherein the
parties were assured that the arbitrator was recovering well and that the parties
‘will definitely receive a copy of the reasoned award by Thursday 19 June 2014,
close of business .…’ It is undisputed that the written reasons were given after
the agreed date. The arbitrator apologised for the delay but ascribed the delay as
having been occasioned by persistent ill health. This is not a case where the
arbitrator failed completely to furnish written reasons, it is a case where reasons
for the delay were communicated to the parties. The delay spanned over a
period of about three months which cannot be described as inordinate to
constitute misconduct, let alone a gross irregularity.

[19] Section 33 of the Act provides as follows:

‘(1) Where-
‘(a) any member of an arbitration tribunal 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) an award has been improperly obtained,
the court may, on the application of any party to the reference after due notice to the
other party or parties, make an order setting the award aside’.
The provisions of s 33(1)(c) give this court a discretion to exercise, judicially, to
set the award aside if there has been a gross irregularity.  It must be noted that
there is no legal prohibition that a written award furnished after the agreed date
per se amounts to misconduct and therefore constitutes a gross irregularity. It is
trite that each case must be considered on its own merits. In the present case the

appellant did not even, after the award was handed down on 31 March 2014,
request a written award from the arbitrator nor did the appellant raise this point
as being prejudicial to its case. The appellant was at pains to try and persuade
this court that such failure or delay to provide written reasons amounted to a
gross irregularity. However not a single authority was proffered by counsel.

[20] The learned authors, D Butler and E Finsen stated the following in
Arbitration in South Africa Law and Practice (1993) at 269 para 7.8: ‘Contrary
to the position in several jurisdictions, neither the Arbitration Act nor the
common law requires an arbitrator to give reasons for his decision. He is quite
entitled to make an award whereby the one party shall pay the other party a
certain sum of money, without furnishing any reasons or justification
whatsoever.’ (Footnotes omitted). (See Schoch, NO & others v Bhettay & others
1974 (4) SA 860 (A) at 865 D-E). In Mutual Shipping Corporation v Bayshore
Shipping Co (The “Montan”) [1985] 1 Lloyd’s Rep 189 (CA) at 191 it was held
(at 192, 198) ‘that a court could still look at the reasons if circumstances so
required.’ It is so that there is a strong case to be made for furnishing written
reasons, but the Act is silent on the consequences of not furnishing or delaying
furnishing written reasons. A court may, upon application order an arbitrator to
furnish a reasoned award. The Act defines an award as including an interim
award and not a written reasoned award. There is no unanimity in many foreign
jurisdictions on this question. This ground is also unmeritorious.

[21]  It is necessary to comment on the lackadaisical manner in which the
appellant went about litigating in this case. The appellant is an organ of state
and uses taxpayers’ money to do its job. It entered into two agreements worth
millions of rands. Then eight years later it decided to challenge the
constitutional validity thereof. At the arbitration stage it neglected to file its
statement of defence and defaulted in remedying or curing the default.

Thereafter it simply walked out of the arbitration proceedings and then filed an
application to review the award. It appealed the decision of the court below
dismissing its application, amended its notice of appeal and abandoned the
constitutional invalidity point. This court will be failing in its duty not to
express its disquiet in the manner the appellant handled the whole litigation
process. It is high time that officials of state organs be held personally liable for
unnecessarily and or negligently incurring costs. Had this issue been pertinently
raised, this court would not have hesitated to order the functionaries personally
to bear the costs of both the arbitration and the litigation.

[22] In my view the appellant failed to persuade this court that the arbitrator
committed gross irregularities. The appeal is therefore misplaced and must fail.

[23] The appeal is dismissed with costs.

____________________

J B Z Shongwe

Acting President of the

Supreme Court of Appeal

Appearances

For the Appellant:
K Tsatsawane (with him T Mofokeng)

Instructed by:

Kunene Rampala Inc, Pretoria

Phatsoane Henney Attorneys, Bloemfontein

For the Respondent:
S Rorke SC

Instructed by:

Smith Tabata Inc, Pretoria

Webbers Attorneys, Bloemfontein