Herholdt v Nedbank Limited (SCA) (unreported case 701/2012, 5-9-2013) (Cachalia and Wallis JJA; Nugent, Shongwe JJA and Swain AJA concurring)

By Moksha Naidoo

The appellant, Herholdt, a financial advisor, was dismissed for failing to disclose to his employer, Nedbank, that he had been named a benefactor in a client’s will.

At arbitration the Commission for Conciliation, Mediation and Arbitration (CCMA) commissioner found Heroldt’s conduct did not amount to dishonesty, as argued by Nedbank, and hence his dismissal was substantively unfair. On review the Labour Court set aside the award, at which time Herholdt appeal to the Labour Appeal Court (LAC).

Having lost his appeal at the LAC, Herholdt approached the Supreme Court of Appeal (SCA).

When interpreting the test to be adopted by the Labour Court on review, the LAC in Herholdt v Nedbank Ltd [2012] 9 BLLR 857 (LAC), per Murphy AJA, endorsed the principle set out in Southern Sun Hotel Interests (Pty) Ltd v CCMA and Others [2009] 11 BLLR 1129 (LC) where the Labour Court said the following: ‘If a commissioner fails to take material evidence into account, or has regard to evidence that is irrelevant, or the commissioner commits some other misconduct or a gross irregularity during the proceedings under review and a party is likely to be prejudiced as a consequence, the commissioner’s decision is liable to be set aside regardless of the result of the proceedings or whether on the basis of the record of the proceedings, that result is nonetheless capable of justification.’

On the strength and in support of this approach, the LAC held: ‘Where a commissioner fails to have regard to material facts, this will constitute a gross irregularity in the conduct of the arbitration proceedings because the commissioner would have unreasonably failed to perform his or her mandate and thereby have prevented the aggrieved party from having its case fully and fairly determined.’

With regard to the threshold triggering the Labour Court’s intervention on review, the LAC said: ‘There is no requirement that the commissioner must have deprived the aggrieved party of a fair trial by misconceiving the whole nature of enquiry. The threshold for interference is lower than that; it being sufficient that the commissioner has failed to apply his mind to certain of the material facts or issues before him [or her], with such having potential for prejudice and the possibility that the result may have been different. This standard recognises that dialectical and substantive reasonableness are intrinsically interlinked and that latent process irregularities carry the inherent risk of causing an unreasonable substantive outcome.’

On appeal to the SCA, the Congress of South African Trade Unions, who was admitted as amicus curiae, argued that the courts have unduly relaxed the standard and test on review by introducing ‘latent irregularities’ and ‘dialectical unreasonableness’ as alternative and/or further considerations when reviewing awards, as compared to the test held by the Constitutional Court in Sidumo and Another v Rustenburg Platinum Mines Ltd and Others 2008 (2) SA 24 (CC).

The SCA began by setting out the test to be adopted by the Labour Court on review, as enunciated in the Sidumo case. The Constitutional Court, in formulating the ‘reasonable decision-maker’ test, held that a court on review is tasked with deciding whether or not the decision of the arbitrator is one that a reasonable decision-maker could not have reached, given the evidence before him or her.

This test, according to the SCA focuses on the reasonableness of a decision reached as opposed to how the decision was reached. While the reasons for the arbitrator’s findings must be examined when adopting this test, a flaw in the arbitrator’s reasoning in arriving at a conclusion, is not in itself sufficient to set aside the award. Apart from an arbitrator’s questionable line of reasoning, a reviewing court must still examine whether or not the conclusion reached by the arbitrator is not one a reasonable decision-maker could reach.

In this manner the Constitutional Court, in giving meaning to the purpose of the Labour Relations Act 66 of 1995 (LRA) (which is adopting a speedy and inexpensive dispute resolution system), preserved the distinction between an appeal and review and further maintained the narrow scope in which to set aside awards on review.

Thus, after the Sidumo decision, it was clear that applications to review awards could only be considered on the basis of the reasonable decision-maker test, read with the grounds contained in s 145(2)(a) and (b) of the LRA.

Under the heading ‘Review of arbitration awards’, s 145(2)(a) states that an award can be reviewed if ‘… the commissioner –

(i)      committed misconduct in relation to the duties of the commissioner as an arbitrator;

(ii)      committed a gross irregularity in the conduct of the arbitration proceedings; or

(iii)     exceeded the commissioner’s powers.’

In examining s 145(2)(a) the SCA said the following: ‘The height of the bar set by the provisions of s 145(2)(a) of the LRA is apparent from considering the approach to reviews of arbitral awards under the corresponding provisions of the Arbitration Act 42 of 1965. The general principle is that a “gross irregularity” concerns the conduct of the proceedings rather than the merits of the decision. A qualification to that principle is that a “gross irregularity” is committed where decision-makers misconceive the whole nature of the enquiry and as a result misconceive their mandate or their duties in conducting the enquiry. Where the arbitrator’s mandate is conferred by statute then, subject to any limitations imposed by the statute, they exercise exclusive jurisdiction over questions of fact and law.’

The grounds listed in the above section were not to be read in isolation but were to be suffused in the legal principle of ‘reasonableness’.

Therefore ‘gross irregularity in the conduct of the arbitration proceedings’ as expressed in s 145 (2)(a)(ii), was limited to situations where, as a result of any gross irregularity, the result reached by the arbitrator was rendered unreasonable.

Turning to the findings of the LAC, the SCA found that the court a quo’s views were in support of a dictum held by the minority of court in the Sidumo case and hence contrary to the binding views upheld by the majority on two grounds.

First, the LAC in casu prescribed a lower threshold for which to interfere with an award on review, as compared to the reasonable decision-maker test. Secondly, the legal concept of the ‘reasonableness of the decision’, expressed in the Sidumo case, was no longer a considering factor in that the existence of potential prejudice to a party, brought about by an arbitrator’s reasoning was, according to the LAC, sufficient to set aside an award without further asking the question whether the decision under review nevertheless fell within a band of reasonableness.

The SCA held: ‘In summary, the position regarding the review of CCMA awards is this: A review of a CCMA award is permissible if the defect in the proceedings falls within one of the grounds in s 145(2)(a) of the LRA. For a defect in the conduct of proceedings to amount to a gross irregularity as contemplated in s 145(2)(a)(ii), the arbitrator must have misconceived the nature of the inquiry or arrived at an unreasonable result. A result will only be unreasonable if it is one that a reasonable arbitrator could not reach on all the material that was before the arbitrator. Material errors of fact, as well as the weight and relevance to be attached to particular facts, are not in and of themselves sufficient for an award to be set aside, but are only of any consequence if their effect is to render the outcome unreasonable.’

In applying the reasonable decision-maker test, the SCA dismissed the appeal on grounds that the arbitrator arrived at a substantively unreasonable decision given the evidence before her.

Note: Unreported cases at date of publication may have subsequently been reported.

Moksha Naidoo BA (Wits) LLB (UKZN) is an advocate at the Johannesburg Bar.

This article was first published in De Rebus in 2013 (Nov) DR 59.