The facts

The parties concluded a sale agreement which required them to refer any disputes arising out of or in connection with the agreement to arbitration. The dispute resolution clause in the agreement provided that the arbitration would be conducted in terms of the Arbitration Foundation of Southern Africa (AFSA) Rules. Various disputes arose between the parties and were referred to arbitration. The parties sought to amend the arbitration agreement as it related to the procedure to be followed by the arbitrator by way of an email. The purpose of the amendment was to provide for a further hearing before the arbitrator issued his award.

The source of the arbitrator’s powers

The court confirmed that the source of the arbitrator’s powers and obligations is the arbitration agreement. This means that the agreement informs the arbitrator’s authority. In terms of the agreement, the arbitrator had the wide discretion to determine the procedure he would follow in the proceedings. As the parties had selected the AFSA rules to apply to their arbitration, the arbitrator’s discretion was enhanced by Rule 27.4 which requires an arbitrator to “hear the matter on the most expeditious or least costly procedure” and “in such a manner as he deems appropriate”. The extent of the arbitrator’s powers would of course be informed by any valid and binding amendments and variations to the arbitration agreement.

The parties, through their representatives, sought to effect an amendment to the arbitration agreement relating to the procedure by way of an email. The direct implication of this amendment would have been a restriction on the arbitrator’s ability to determine the procedure he would follow in the proceedings. He would have had to convene a hearing even though he did not consider one necessary. The arbitrator interpreted the email as a mere suggestion and not a valid amendment to the arbitration agreement. He then issued his award without convening a hearing as agreed by the parties and conveyed to him in the email. The parties considered the arbitrator’s refusal to comply with the terms of the email a gross irregularity and approached the court to set aside the decision.

The decisions of the High Court and Full Court

The High Court, as per Wright J, dismissed the review. It held that the arbitrator did not reasonably require further hearings to decide on the issues raised in the email by the parties as the issues had been disputed and debated in evidence and argument and were clear. The court concluded that the arbitrator’s award was “detailed, careful, comprehensive … and generally shows that [the arbitrator] took into account everything that both sides required him to consider”.

With the leave of Wright J, the buyers appealed to the full court. The full court found that the arbitrator ought to have complied with the terms of the email. The court considered the email an amendment to the agreement. It found that the arbitrator went against the agreement reached by the parties in relation to a further hearing. Due to the discrepancies in some of the issues, the arbitrator was obliged to convene another hearing to allow the parties to lead further evidence in respect of the issues, and, as such, a further hearing was necessary. The full court set aside the order of the High Court and upheld the review – setting aside the arbitrator’s award.

The SCA on whether the email constituted an amendment

The SCA was not in agreement with the full court regarding the validity of the agreement. It held that the issue of whether the arbitrator was obliged to have had a further hearing was a question of law. The terms of the email could not have validly added to or amended the arbitrator’s powers in terms of the agreement unless reduced to writing and signed by the parties. The parties’ failure to comply with that formality constituted an invalid amendment or addition to the arbitrator’s powers which would impose a binding obligation on him in law to have had a further hearing, irrespective of what the buyers and seller might have agreed. It was entirely in the arbitrator’s discretion to conduct a further hearing and that was dependent on whether he thought it was necessary in giving effect to the terms of his original mandate.

Furthermore, the court held that even if its conclusion was incorrect and the email could have imposed valid obligations adding to and amending the wide terms of the arbitrator’s original appointment, the email had to be interpreted to determine the ambit of such obligations. The arbitrator had to interpret the email and he would have had to do so by having regard to the wording of the email in the context within and the purpose for which it came into existence. Whether his interpretation was right or wrong, it would have been final and not subject to review. Importantly, the SCA further held that the email did not impose an unequivocal obligation requiring a hearing in respect of certain issues, otherwise, it would have said so. A suggestion as to what procedure the arbitrator can follow is not a definitive obligation. Given the interpretation of the email by the SCA, the question of whether some issues were clear or not clear, would have been an issue for the arbitrator to determine. The issued award would be final, even if wrong, and would not be susceptible to review.

Key takeaways

A provision that requires parties to refer disputes to arbitration is common in construction contracts. The parties usually agree on the applicable procedure prior to the proceedings. This forms part of the arbitration agreement. The parties to an arbitration agreement are not prohibited from varying their agreement. However, for the amendment or variation to be valid, it must be in writing and signed by both parties as required by the relevant provision of the agreement, if any (i.e. the non-variation clause). Therefore, the parties can address email correspondence to the arbitrator during the proceedings which contains an amendment that has been reduced to writing and signed by them. The parties must give regard to the content of the amendment and ensure that it is clear on their intention as it relates to their envisaged procedure and definitive of the obligations of the arbitrator. This will ensure that the amendment is compliant with the formalities for any addition to or variation of the arbitrator’s powers.