SWAZIMED WINS E30M MEDSCHEME AWARD APPEAL

MBABANE – Swaziland Medical Aid Fund (SwaziMed) has emerged victorious in its battle against Medscheme Administrators Swaziland (PTY) Limited.

High Court judges yesterday set aside the award by the arbitrator who had ordered SwaziMed to pay damages to the tune of  E30 million to Medscheme for breach of contract.
The court also referred the dispute between the parties to a new arbitrator and Medscheme was also directed to pay costs of the matter.

Retired South African Judge Philip Levinsohn, who was the arbitrator, had awarded Medscheme a sum of E21 904 540.63, being the gross amount it would have received between April 2013 and December 2013.

The arbitrator had also awarded Medscheme further damages in the sum of E4 781 017.45 in respect of unpaid administration fees for the months of January to March 2017.

Interest on both amounts was at the rate of nine per cent, calculated from the date of the award. Judge Levinsohn also declared that the appointment of SwaziMed Principal Officer Peter Simelane was invalid.
SwaziMed had filed a review of the decision of the arbitrator and the matter was heard by a full bench comprising Judge Mbutfo Mamba, who sat with Judge Cyril Maphanga and Judge Doris Tshabalala.

The order setting aside the award and referring the matter to a new arbitrator was issued by Judge Maphanga and Judge Tshabalala; Judge Mamba issued a dissenting judgment.

approach

In the majority judgment, Judge Maphanga said: “I think the approach taken by the learned arbitrator of invoking the ‘commerciality’ principle in the abstract outside of the pleaded matter, was problematic in so far as it involved an analysis of an aspect without proper ventilation of both sides of the parties’ version or constructions of what would be a ‘commercially sensible’ and ‘reasonably businesslike’ version.”

He said there laid a difficulty with the approach the arbitrator adopted in relation to the submission.
The court said on the facts and circumstances of this case, regardless of the merit of the decision and interpretation reached by the arbitral tribunal, the approach that was taken by the arbitrator constituted a departure from the submission.

“I am inclined to find that the question as to whether there was a tacit agreement being a matter neither covered nor properly canvassed by way of evidence and attendant submission before the arbitrator was fundamental to the dispute,” said the judge.
The court further stated that it was common cause that the only time the matter was raised and dealt with in evidence before the arbitrator was during the cross- examination of Peter Mamba.

The dispute between the parties has had a contentious history particularly in the pre and post arbitral phases of the proceedings. Not least among these involved the declaration, submission and initiation of the arbitration, whose course was marked with significant misadventure.

SwaziMed is not-for-profit mutual fund whose core business operations entail the management of medical aid fund or scheme with associated services to its members.

It is by all accounts the largest medical aid scheme in the Kingdom of Eswatini.  In terms of the recently promulgated statutory regulatory framework it is designated as a financial service provider in the medical aid service industry. 

Meanwhile, Medscheme is a company incorporated in the kingdom as a consultancy and was engaged by SwaziMed in terms of a management agreement for the purpose, to carry out management and administrative services as administrators of the fund on behalf of SwaziMed.
Medscheme is a subsidiary of a holding company which is registered and has its principal offices situated in the Republic of South Africa- Medscheme Holdings (Proprietary) Limited. 

Other common cause factors are that the contractual arrangements between SwaziMed and Medscheme were governed and regulated under a written management agreement concluded by the parties on April 30, 2017.

The agreement was to endure for a period of five years with an option of renewal or extension.
The construction of the renewal provisions became central of the critical contentious issues in the ensuing dispute between the parties which gave rise to the arbitration and ultimately the application.

In the judgment, Judge Maphanga highlighted that of significance to this background and a common cause fact was that on full term the tenure of the agreement was ‘ automatically  renewed’ for a further period of five years; albeit by default of  neither of the parties having triggered the termination pre- conditions to the agreement.

He said central to the ensuing dispute was the construction of the renewal clause as to the precise circumstances as pertains to the duration and end date of that extension or renewal.
noted
The court also noted that the agreement also contained an arbitration clause in terms of which any disputes or differences arising out of the agreement would first be dealt with internally between the parties to explore a settlement thereof, failing which the dispute would after the lapse of 10 days be referred to arbitration. 
The parties nominated the Arbitration Foundation of Southern Africa (AFASA) as the arbitral institution to which the dispute would be submitted and be administered in terms of its rules.
“A crucial event during the extended or renewal tenure of the agreement occurred on May 2016. On that date SwaziMed purported to give notice of its intention to terminate the agreement effective March 21, 2017 allegedly taken by its Board of Directors at a special meeting convened,” said Judge Maphanga.
The judge pointed out that the crisp issues presenting for adjudication before the arbitrator were whether on Medscheme’s side it had made out a case for its claim that SwaziMed by purporting to terminate the management agreement, had misconstrued the renewal and terminal clause thus consequently repudiating. 
He said on the other hand, the arbitrator was faced with determining whether SwaziMed’s own counterclaims founded on various allegations of mismanagement, breach of contract and/or delictual conduct had merit.
One of SwaziMed’s spirited attacks on the arbitrator’s award or conduct was that the arbitrator made a patent error by wrongly interpreting Clause 5 of the Management Agreement.
It was SwaziMed’s contention that the arbitrator’s interpretation of the aforementioned clause was not only wrong in law but had an effect of creating an agreement for the parties. SwaziMed also argued that the allegedly erroneous interpretation of Clause 5 constituted an error of law on the face of the award.
During the argument of the matter, SwaziMed contended that Medscheme Ltd did not deserve the amount of E30 million, which it was awarded by the arbitrator.
In his submissions SwaziMed’s legal representative, Mangaliso Magagula of Magagula and Hlophe Attorneys, argued that by awarding Medscheme the ‘windfall’ Judge Levinsohn exceeded his powers in a manner which called for the court to exercise its supervisory powers.
Magagula denied that SwaziMed breached its contract with Medscheme
 He submitted that the award for damages had grave implications for SwaziMed. He also argued that there was no justification for awarding the said amount. The award, according to Magagula, was out of proportion.
“The arbitrator completely misdirected himself and exceeded his powers by awarding Medscheme a windfall they did not work for. They are happy to get E30 million they don’t deserve and there is no justification,” said Magagula.
damages
SwaziMed was not satisfied with the manner the damages were calculated which he described as strange and mentioned that was why they referred to the award as a windfall which Medscheme was allegedly not entitled to. Magagula told the court that the award was based on patent errors of law which were manifest.
SwaziMed’s grounds for review were that the Judge, Levinsohn, in some respects, allegedly assumed jurisdiction he did not have and decided a matter he was not entitled to. The arbitrator, according to SwaziMed, allegedly exercised the jurisdiction he had in a manner not permitted by law.
“The jurisdiction was exercised in a manner which was tantamount to over-stepping the limits of his jurisdiction. Thirdly, the award is founded on patent errors of law on the face of the record which occasions grave injustice and a gross failure to SwaziMed and its members,” SwaziMed argued.
The other ground for review was that the arbitrator allegedly became a party to what has become the primary source of dispute “which is suggesting to the parties that they remove a provision of the arbitration agreement relating to appealability of the award to a court and then signing a copy that did not contain the change he suggested.”
The suggestion was that the award be appealable to an appeal tribunal which according to SwaziMed, made Judge Levinsohn unsuited to be an arbitrator. Based on this argument, SwaziMed prayed that the arbitration be remitted for fresh arbitration before a different arbitrator.
Magagula went on to argue that Judge Levinsohn made his ruling allegedly based on wrong interpretation of Clause 5 of the contract agreement. The arbitrator, according to SwaziMed, interpreted the agreement as having commenced on April 30, 2007 for a period of five years ending on April 29, 2012.
Magagula stated that the arbitrator said a tacit agreement came into existence from April 30, 2012. He said Judge Levinsohn found that the agreement, which expired on April 29, 2012, then renewed itself on January 1, 2013 for a period of five years that was to expire on December 31, 2017 instead of December 2016.
Magagula alleged that the arbitrator’s interpretation was the reason to award substantial damages to Medscheme.
“Put differently, the award is based on the arbitrator’s interpretation of Clause 5 of the agreement and it formed the basis for the award of damages. SwaziMed respectfully submits that the arbitrator’s interpretation of Clause 5 of the agreement was fundamentally flawed.”
interpretation
Magagula argued that the arbitrator’s interpretation had allegedly expired by effluxion of time and it could not then renew itself eight months later. He said Judge Levinsohn’s interpretation was a patent error of law and that there was no legal basis to conclude that there was a tacit agreement since it was not pleaded by Medscheme.
SwaziMed further argued that the arbitrator awarded the damages on the gross amount. Magagula said even if the damages were awarded, it would not be on the gross amount because Medscheme would have incurred expenses in providing its management services.
He said the expenses would have been payable from the gross amount and Medscheme would be entitled to receive what it earned as profit and not the gross amount. The amount awarded for damages, according to SwaziMed, was allegedly a direct consequence of a patent error of law.
Medscheme was represented by Advocate Paul Kennedy and Advocate Christien Bester, who were instructed by senior lawyer Kenneth Motsa of Robinson Bertram.

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