Supreme Court of Appeal of South Africa s3

REPUBLIC OF SOUTH AFRICA

SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM The Registrar, Supreme Court of Appeal

DATE 22 November 2006

STATUS Immediate

Please note that the media summary is for the benefit of the media and does not form part of the judgment.

CASE Telcordia Technologies Inc v Telkom SA Limited (Case No 26 / 05)

Media Statement

On 22 November 2006, the Supreme Court of Appeal upheld an appeal by Telcordia Technologies, a Delaware based corporation, against an order by the Pretoria High Court in favour of Telkom SA Ltd, setting aside an international arbitration award by Anthony Boswood QC, a London barrister.

On review to it under s 33 of the Arbitration Act the High Court set aside the arbitration award, removed the arbitrator and appointed three new arbitrators (all retired South African judges), in his stead. The High Court in essence held that the arbitrator had committed certain gross irregularities in the arbitration proceedings in the course of interpreting a contract which the parties had concluded on 24 June 1999.

The agreement provided that all disputes between the parties had to be determined by arbitration, which had to take place before a single arbitrator of a nationality other than those of the parties in terms of the rules of the International Chamber of Commerce (the ICC). The main object of the agreement was for Telkom to be provided with a state of the art automated telecommunications system. To that end Telcordia had to develop highly individualised and specialised software products to satisfy Telkom's specific operational requirements. Those software systems had to be delivered in phases called releases. The two relevant releases for purposes of the 2 arbitration and the subsequent review were a Voice software release and a Non- Voice software release which Telcordia had to ship to Telkom on 30 June 2000 and 29 December 2000 respectively. The total contract value was some US$ 51,8m for the Voice software and US$ 34,8m for the Non-Voice software. The dispute between the parties concerned Telcordia's delivery obligations. Telkom, relying on its interpretation of the contract disputed that Telcordia had duly performed in terms of the agreement. It accordingly refused to effect payment of certain moneys that Telcordia contended was due in terms of the agreement and to accept Telcordia's tender of certain software in December 2000. The arbitrator accepted Telcordia's interpretation of the contract. He found that Telkom had repudiated the agreement and that Telcordia had validly accepted the repudiation.

Telkom's complaint before the High Court related to the nature of the evidence that the arbitrator had taken into account and his failure to appreciate the import of South African law (which applied in terms of the agreement) in relation to the interpretation of the contract and to certain amendments. The High Court's approach was to interpret the agreement afresh. It accordingly came to a different conclusion as to its meaning. It then concluded that the arbitrator had not applied his mind to the agreement in a proper manner and that he had misconceived the nature of the inquiry and his duties and furthermore that he had exceeded the bounds of his powers. The Supreme Court of Appeal held that it was not for the High Court to re- interpret the contract: it should have determined whether gross irregularities as alleged by Telkom had been committed. In conducting itself as it did, the High Court had, according to the Supreme Court of Appeal, impermissibly dealt with the matter as an appeal and not a review.

In respect of some of the criticisms levelled by Telkom against the arbitrator, the Supreme Court of Appeal held that even if the arbitrator may have been wrong in his reasoning (which he was not), that did not mean that he had misconceived the nature of the inquiry or his duties or that he had acted irrationally. According to the Supreme Court of Appeal, it could not be said that the arbitrator had committed any gross irregularities in the arbitration proceedings or exceeded his powers as envisaged in s 33 (1) (b) of the Act. After all, by agreeing to arbitration, the parties had, as the Supreme Court of Appeal noted, limited interference by courts on the grounds of the procedural irregularities set out in s 33 (1) of the Act. By necessary implication they had therefore waived the right to rely on any further ground of review.

The Supreme Court of Appeal held that the conclusion by the arbitrator that Telkom's refusal to accept delivery of the tendered software was a repudiation of the agreement which Telcordia was entitled to accept as discharging the agreement, could not be faulted. There were no grounds, according to the Supreme Court of Appeal, for the setting aside of the arbitration award. In doing so, the High Court had, in the view of the Supreme Court Appeal, erred. The appeal accordingly succeeded and the order of the High Court was set aside. In its stead was substituted an order dismissing Telkom’s application with costs.

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