There are Limits to an Arbitrator’s Jurisdiction

In December 2025, the Supreme Court of Appeal ruled that arbitrators do not have the power to declare contracts concluded in the course of public procurement unlawful or invalid.^[1]

The case concerned a contract awarded by a municipality to a contractor to construct roads in circumstances where the municipality had not followed the required tender process preparatory to awarding the contract.

The contractor completed the contract works, but the municipality failed to pay the contractor.

The contractor sued for its money in the High Court. The municipality defended the action inter alia on the grounds that the contract was unlawful because the provisions of section 217 of the Constitution and relevant sections of the Local Government Municipal Finance Management Act, which stipulate that public procurement can only be done in accordance with a competitive bidding process, had not been complied with.

By agreement, the parties took the dispute out of the domain of the court and referred it to arbitration before retired Judge Ngoepe.

The arbitrator upheld the municipality’s challenge to the validity of the contract and declared it to be invalid, unlawful and unenforceable on account of non‑compliance with the legal regulatory framework governing procurement.

The contractor applied to the High Court to have the arbitrator’s award reviewed and set aside. The High Court dismissed the application, and the contractor appealed to the Supreme Court of Appeal.

The Supreme Court of Appeal set the High Court’s decision aside and held that the arbitrator’s award fell to be reviewed and set aside for want of jurisdiction.

The Supreme Court of Appeal clarified that:

• Public procurement is subject to laws that concern the exercise of public powers; and

• The question of whether there has been a lawful exercise of public powers and what the remedies are for an unlawful exercise of such powers are matters that can only be decided by a court and not an arbitrator.