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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH

                                                                                                CASE NO 3065/2015

                                                                                                DATE HEARD: 11/02/2016

                                                                                                DATEDELIVERED: 22/03/2016

In the matter between

PRO-KHAYA CONSTRUCTION CC                                                                       APPLICANT

and

The Trustees for the time being of

THE INDEPENDENT DEVELOPMENT TRUST                                                RESPONDENT

JUDGMENT

ROBERSON J:-

[1] In this application the applicant (Pro-Khaya) seeks to have an arbitration award made an order of court, in terms of s 31 (1) of the Arbitration Act 42 of 1965 (the Act), as well as an order for payment by the respondent (the Trust) of the various sums of money awarded to Pro-Khaya by the Arbitrator, Advocate Kevin Trisk SC.  The arbitration arose from an agreement between Pro-Khaya and the Trust, which is a Schedule 2 public entity governed by its trust deed and the Public Finance Management Act 1 of 1999, in terms of which Pro-Khaya was to construct a multi-storey classroom development and certain other buildings in Kwanobuhle, Uitenhage, in return for payment by the Trust of R27 586 305.69.  The agreement was styled a Principal Building Agreement prepared by the Joint Building Contracts Committee Inc and I shall refer to the agreement in this judgment as the JBCC agreement.  The JBCC agreement provided for dispute resolution by way of arbitration, and the arbitrator was to be appointed by the Arbitration Foundation of Southern Africa (AFSA).  The arbitration proceedings were conducted and concluded in the absence of the Trust.  The Trust opposed the application and raised various defences.  It also brought a counter-application for the setting aside of the award, in terms of s 33 (1) of the Act.  The Arbitrator filed a notice to abide the decision in the counter-application. 

BACKGROUND

[2] The JBCC agreement was concluded during 2008.  It seems not to be in dispute that during 2011 the JBCC agreement was terminated owing to non-payment by the Trust, but at the request of the Trust the termination was withdrawn.  On 15 December 2011 the principal agent certified that practical completion of the works had been achieved.  During 2012 Pro-Khaya obtained default judgment against the Trust for payment of R674 039.37, which sum was paid after the issue of a writ of execution.  A further action was instituted in this court during 2012 for payment of R4 379 032.80, made up of various amounts in terms of certain interim payment certificates which had allegedly been issued by the principal agent.  In terms of the JBCC agreement the Trust was obliged to pay Pro-Khaya the amounts certified in the interim payment certificates within 21 days of the issue of the certificates.  It was alleged that the Trust had failed to pay the various amounts so certified. 

[3] The Trust entered an appearance to defend the action and was represented by Ms Babalwa Malgas of Cwati Malgas Mgidlana Inc of East London, locally represented by Siya Cokile Inc, Port Elizabeth.  Pro-Khaya applied for summary judgment and the Trust delivered an opposing affidavit in which it raised various defences to the claim.  The precise nature of some of the defences raised was a little difficult to glean from the opposing affidavit (which was annexed to Pro-Khaya’s replying affidavit in the present application) but I summarise them as best I can as follows:

a.    The principal agent denied having issued payment certificates. 

b.    It had been resolved at a meeting between the parties that Pro-Khaya would allow a discount on one of the amounts making up the claim, but failed to advise the Trust of the amount of the discount in order to enable the Trust to make payment. 

c.    Payment of one of the amounts making up the claim depended on the approval of the final account which had not been approved.   

d.    No payments would be made until certain issues had been resolved.  These issues related to clauses 29 and 30 of the JBCC agreement which dealt with the revision of the date for practical completion and the penalty for non-completion respectively.  The principal agent had informed the applicant that the final account would not be approved or finalised until Pro-Khaya had complied with the requirements of clauses 29 and 30. 

e.    There was a dispute about the amounts of interest claimed, and there was no agreement concerning the levying of interest.  

f.     Pro-Khaya had failed to submit its statements properly for payment, and had failed to allow a debatement of those claims which had been submitted.

g.    The respondent had a counterclaim against Pro-Khaya which would be set off against Pro-Khaya’s claim in the event of the court finding that the Trust indeed owed the money.  (It seems from the affidavit that the counterclaim related to penalties for late completion of the works.) 

h.    Clause 40 of the agreement provided for dispute settlement and the court had no jurisdiction to entertain the matter.[1]

[4] The summary judgment application was heard on 15 April 2014 and judgment was reserved.  On 10 June 2014 Pro-Khaya’s attorney Mr Gerald Friedman sent an e-mail to Mr Patrick Baloyi of the Trust, copied to Siya Cokile Inc and the principal agent.  Reference was made to the summary judgment proceedings and the issues raised therein, and the following was recorded:

“Whilst no concessions in this regard are made, our client intends to avail itself of the opportunity to proceed to arbitration, there clearly being a dispute in regards to a number of aspects.

This letter serves as notification that our client hereby declares a dispute inter alia, in respect of the following issues:

a.    the alleged failure by the Principal Agent to issue interim payment certificates on due date;

b.    the failure by the Principal Agent on behalf of the client, to issue a final account, notwithstanding the issue of a Practical Completion Certificate and the lapse of time in terms of the contract.

If the dispute remains unresolved for a period of 10 days from date hereof, our client will refer all the outstanding issues to arbitration.  As is common cause, failing agreement in regards to the appointment of an Arbitrator, the said appointment with be made by AFSA Sandton, Johannesburg.

We would propose (if any response is forthcoming) that we agree to appoint an Arbitrator in the Eastern Cape, which will have considerable savings for all the parties.

Either way, failing agreement or resolution within 10 days, we will proceed immediately to call for the appointment of an independent Arbitrator.”

[5] Siya Cokile Inc responded to the e-mail as follows:

“We refer to the above matter and acknowledge receipt of your email sent to us on 10 June 2014.

As you are aware that we are only acting as Independent Development Trust’s local Attorneys, we are forwarding the contents of your email to our Correspondents in East London for their client’s further instructions.

We shall revert to you as soon as we hear from our Correspondents herein.”

[6] By letter dated 3 July 2014 Siya Cokile Inc advised Friedman as follows:

“We confirm that our correspondent’s instructions are that their client is willing to deal with the dispute by referring it to arbitration, if your client abandons the summary judgment proceedings.”

[7] According to Friedman on 8 July 2014 he and Malgas telephonically concluded an oral agreement in terms of which the entire dispute between the parties was to be referred to arbitration, the High Court action would be discontinued, and the costs of that action would be dealt with by the Arbitrator.  Malgas denied such agreement, denied having spoken to Friedman on 8 July 2014, and maintained that she only had a mandate from the Trust in respect of the High Court action.  I shall deal with this dispute later in this judgment.  Further correspondence and events which took place up to and including the arbitration proceedings were however not in dispute.

[8] By letter dated 8 July 2014 Friedman informed the Registrar at the Port Elizabeth High Court as follows:

“1. This matter was argued before Judge Dunya (sic) AJ on 15^th April 2014 and Judgment in respect of the Summary Judgment is pending.

2.  In view of the dispute between the parties, it has been agreed that the entire matter, including additional claims, be referred to arbitration, in terms of the JBCC rules applicable to the contract.

3.  In the circumstances, kindly notify the Presiding Judge that this matter is not proceeding any further and that there is no necessity to issue a Judgment.”

A copy of this letter was e-mailed to Siya Cokile Inc. 

[9] It seems the presiding judge was not informed of the agreement because his judgment, in which he refused summary judgment, was delivered on 15 July 2014.

[10] On 10 July 2014 Friedman e-mailed a letter to AFSA, copied to Siya Cokile Inc, in which he stated the following:

“1.  We represent Pro-Khaya Construction CC.

2. Our client is in dispute with the Independent Development Trust and the dispute is, by agreement, referred to AFSA in accordance with the JBCC Series 2000 Principal Building Agreement.

3.  We annex hereto the Post Tender information and refer to clause 42 and specifically to clause 42.7.3.

4.    A portion of the dispute relating to the issue of various certificates has already been heard by the High Court and Judgment is being awaited.

5.    The parties are in agreement that the High Court proceedings will form part of the arbitration and the Presiding Judge has been notified thereof.

6.    Would you kindly, per return, furnish us with your requirements, as well as details of the proposed appointment.”   

[11] Pro-Khaya’s statement of claim in the arbitration was served on Cwati Malgas Mgidlana Inc on 18 February 2015.  No statement of defence or counterclaim was delivered on behalf of the Trust.

[12] The Arbitrator accepted AFSA’s invitation to act as the Arbitrator and received the statement of claim and other documents.  On 1 April 2015 the Arbitrator e-mailed a letter to Friedman and Malgas in which, inter alia, he stated that he was willing to conduct a pre-arbitration meeting by way of a telephone conference.  On being advised that the Trust had not paid its share of AFSA’s administration fee and had not filed its statement of defence, the Arbitrator issued a directive to the effect that the Trust was to deliver its statement of defence and to pay AFSA by or before 24 April 2015.  The Trust did not comply.  AFSA was informed by Malgas that she mistakenly believed that a payment she had received from the Trust was for this matter, but it was in fact for another matter.

[13] The Arbitrator directed that a preliminary meeting was to take place on 5 May 2015.  This meeting took place by way of a teleconference attended by the Arbitrator, Friedman, and Malgas.  It was agreed at the teleconference that the Trust would deliver its statement of defence and counterclaim, if any, and pay AFSA, by close of business on 15 May 2015.  The Arbitrator further directed that if the Trust did not comply the matter would proceed on a default basis.  Friedman prepared a note of what was agreed which was sent to the Arbitrator and copied to Malgas and AFSA.  According to Malgas she thought the teleconference related to another matter.

[14] On 15 May 2015 Malgas delivered a statement of defence but it related to another matter involving the Trust before a different arbitrator.  The mistake was pointed out to her by Friedman and she was requested to deliver the correct statement of defence.

[15] By letter dated 22 May 2015 the Arbitrator informed Friedman and Malgas that he had been advised by AFSA that the Trust had failed to deliver a relevant statement of defence nor had it paid the amount due to AFSA.  Pro-Khaya was therefore entitled to request him to enrol the matter by notice to both parties.  The arbitrator consequently and by letter addressed to Friedman and Malgas, directed that the hearing of the arbitration was to proceed on 9 and 10 June 2015.  AFSA, by letter dated 26 May 2015 e-mailed to Friedman and Malgas, confirmed the dates and attached an invoice for each party for the Arbitrator’s fees.  Friedman thereafter e-mailed Malgas requesting her to indicate if she had instructions from the Trust.  As far as the Arbitrator was aware there was no response from Malgas. 

[16] Under cover of an e-mail dated 1 June 2015 Friedman sent to the Arbitrator a document containing the qualifications of Pro-Khaya’s expert witness and a summary of the evidence to be given by the expert.  This summary was according to Friedman sent to Malgas.

[17] On 9 June 2015 and before the proceedings commenced the Arbitrator requested Friedman to try to contact Malgas, who did so without success.  The Arbitrator was satisfied that notice of the proceedings was given to Malgas and that it had in all probability, if not in fact, come to the attention of the Trust.  The Arbitrator proceeded with the arbitration in the absence of the Trust, as provided for in Article 10.1.1 of the AFSA rules.

[18] Under cover of a letter dated 18 June 2015, copied to Malgas, Friedman sent the arbitrator Pro-Khaya’s heads of argument which contained certain amendments to the statement of claim.   

[19] The award was published on 27 July 2015.  AFSA and Friedman informed Malgas in writing accordingly.  Thereafter a representative of the Trust e-mailed Friedman informing him that the Trust was not aware of the arbitration award and requested a copy of the award.   A letter from the Trust’s new attorneys, Ledwaba Mazwai Inc, followed in which inter alia it was stated: 

“3.  Our client notes that the arbitration award was obtained by default.  Our client is accordingly perturbed by this turn of events as it was oblivious to the process which led to the granting of the arbitration award.  More specifically, our client was not aware of the appointment of the arbitrator; the notices and pleadings exchanged in the arbitration; and date of the hearing of arbitration.  We are instructed – as we hereby do – to request copies of all of the notices and pleadings which were exchanged in the arbitration process.

4.  The fact that our client was oblivious to the arbitration process is an issue which our client is taking up with their former attorneys of record whose mandate was terminated this Monday.”

The letter also set out certain grounds on which the award could be set aside and Pro-Khaya was invited to abandon the award.

DEFENCES TO THE APPLICATION

Trustees not cited

[20] As appears from the heading, the respondent is cited as “The Trustees for the time being of the Independent Property Trust”.  The Trust took the point that all the trustees were not individually cited and that the Trust was not properly before the court.

[21] Cameron De Waal Wunsh Honoré’s South African Law of Trusts 5^th edition at 419-420 state:

“Unless one or more of the trustees are authorized by the others, all the trustees must be joined in suing and all must be joined when action is instituted against a trust. 

In legal proceedings the trustees must act nomine officii and cannot act in their private capacities.  It is usual for the trustees to be cited as ‘A, B and C in their capacity as the trustees of the XYZ Trust’ but cases in which the trust as such is cited are not unknown and there should be no objection to a citation of ‘the trustees for the time being of the XYZ Trust’.”

[22] In Pro-Khaya’s replying affidavit Friedman stated that prior to the issue of summons in the High Court action the only information Pro-Khaya had relating to the identity of the trustees of the Trust was the reference in the pre-tender information to “The Independent Development Trust.”  Friedman attempted to discover the identity of the trustees at the office of the Master of the High Court, without success.

[23] In Desai-Chilwan NO v Ross and Another 2003 (2) SA 644 (C) it was said that a court retains a discretion to condone a defect in the citation of a Trust (at para [28]).  In the present matter I am of the view that there is ample reason to condone the defect.  It was not in dispute that Friedman attempted unsuccessfully to discover the names of the trustees.  The deponent to the answering affidavit (founding affidavit in the counter-application) was Mr Nemasisi Ntsumbedzeni, employed by the Trust as a senior legal manager.  He stated that he was authorised to depose to the affidavit.  Such authority would have been given by the trustees.  The notice of motion in the counter application cited all 11 trustees by name.  In these circumstances the objection is highly technical and can be condoned.  Effectively all the trustees are before the court in their capacities as trustees and there was no real failure to cite all the trustees.  This ground of defence is without merit.  I consequently do not need to deal with the submission that the Trust could be cited by its business name in terms of Uniform Rule 14.

No agreement to refer to arbitration

[24] This defence related to the alleged agreement concluded on 8 July 2014.

Here I must deal with Pro-Khaya’s application to strike out a portion of Malgas’s affidavit.  I have somewhat prematurely referred to portions of her affidavit when recounting the history of the matter.  The founding affidavit in the application was deposed to by Mr Eden Smith, who is Pro-Khaya’s managing member.  In his affidavit he referred to the letter from Ledwaba Mazwai Inc wherein it was stated that the arbitration award had been obtained by default without the knowledge of the Trust.  Smith stated that Malgas had represented the Trust in the High Court matter and that those proceedings together with all the disputes between the parties had been consensually referred to arbitration.  In the answering affidavit the Trust denied that the High Court proceedings had been consensually referred to arbitration and maintained that the arbitration had been initiated by Friedman’s letter of 10 June 2014 (see para [4] above).  That letter, so it was alleged, did not state that the proceedings were consensually referred to arbitration.  In his replying affidavit, which was also in part an answering affidavit in the counter-application, Friedman set out full details of his interaction with Malgas, which included correspondence following the summary judgment application, the oral agreement allegedly reached on 8 July 2014, Malgas’ participation in the teleconference, and subsequent correspondence addressed to her.  It was only after Friedman’s affidavit was delivered that an affidavit from Malgas was obtained, in which she responded to Friedman’s allegations concerning her part in the arbitration, from the time of the summary judgment application onwards. 

[25] It was contended that the portion of the affidavit sought to be struck out was new matter and that the Trust was trying to “relieve the pinch of the shoe”, and that there was no reason why Malgas could not have deposed to an affidavit when the answering affidavit was delivered.  Malgas was, so it was contended, seeking to supplement the allegations that the Trust was unaware of the arbitration proceedings and that the High Court matter was not consensually referred to arbitration.

[26] I have decided not to grant the application to strike out.  At the time Smith deposed to the founding affidavit, Pro-Khaya was aware of the contents of Ledwaba Mazwai Inc’s letter and the assertion that the Trust had no knowledge of the events leading up to the arbitration award.  I think that in such a situation something more about Malgas’ involvement in these events could have been said in the founding affidavit.  It is so that her name was mentioned in the founding affidavit and it would have been prudent to obtain an affidavit from her in answer to the founding affidavit.    In addition the arbitrator’s award was annexed to the notice of motion and Malgas’ involvement in the arbitration was dealt with in some detail in the award.  However in view of the fairly extensive elaboration of her involvement in the arbitration contained in Friedman’s replying affidavit, which was also an answering affidavit in the counter-application, and the critical role the alleged oral agreement played in this application, I am prepared to allow those portions of her affidavit.  I would however not in the circumstances make a costs order against the applicant in the application to strike out. 

[27] I return now to the defence that there was no agreement to refer the disputes to arbitration.  There is a dispute of fact:  Malgas denied outright that she spoke to Friedman on 8 July 2014 and that an agreement to refer all the disputes between the parties to arbitration was concluded.  One must examine this denial and other aspects of Malgas’ affidavit in the context of much that is common cause in order to determine whether or not there is a bona fide and genuine dispute of fact. 

[28] Friedman’s account of the agreement between him and Malgas was given in some detail.  He stated that he dealt personally with Malgas in relation to the High Court proceedings.  After recounting the prior correspondence with Siya Cokile Inc, he stated that on 8 July 2014 he telephoned Malgas and suggested that a local arbitrator, retired Judge Franklin Kroon, be appointed.  He and Malgas agreed that the entire dispute between the parties, which incorporated the claim in the High Court action, the costs of the High Court action, and the counterclaim, would be referred to arbitration.  It was further agreed that Friedman would write to the judge who heard the summary judgment application and request him not to deliver judgment, and also that Friedman would write to AFSA confirming the agreement.  Friedman kept a file note of the conversation with Malgas, which read as follows:

“Attend to call Babes Malgas[2] and suggest that we appoint a local arbitrator, such as Frank Kroon as AFSA is in Johannesburg.  Maybe we ask AFSA to appoint a local arbitrator as it is cheaper and easier for all.

She says that she will speak to her client about it.  I advised that I have already made the suggestion but no response at all has been received and we are wasting our time.

I advised Babes that I have written to the High Court Judge to advise him that the high court proceedings will form part of the dispute and that costs are reserved.  I will deal with the high court certificates in my statement of claim, which will be the entire claim.

I further advised that I will write to AFSA.  If her instructions are to go local she must let me know.

Duration:  10 minutes.”

[29] Malgas stated that her only dealings with Friedman were to request him to agree to a postponement of the summary judgment application.  She denied speaking to Friedman thereafter, in particular telephonically on 8 July 2014, and stated that his allegations of the agreements reached were not correct.  According to her she only had instructions from the Trust with regard to the preparation of the opposing affidavit in the summary judgment application and the prosecution of the summary judgment application.  She had, so she stated, always avoided discussing the merits of the matter because she did not have such instructions from the Trust.  With reference to correspondence between Friedman and Siya Cokile Inc in which arbitration was discussed, she stated:

“…..from the annexures annexed to the replying affidavit it is quite apparent that Mr Friedman directed correspondence to our correspondent attorneys in this regard.”

[30] Malgas’ affidavit is instructive in what it does not say.  She stopped short of saying that correspondence sent to Siya Cokile Inc was not forwarded to her, which it would have been in the normal course of legal practice.  She did not deal with the content of Siya Cokile Inc’s letters which clearly reflected that they were taking instructions from her with regard to the arbitration proposal, and that ultimately arbitration was agreed to provided that the summary judgment application was abandoned.  She failed to mention, if indeed she had not agreed to arbitration on behalf of the Trust, what the position was regarding the summary judgment application.  She did not deal at all with Friedman’s letter to the Registrar, which was copied to Siya Cokile Inc, which stated that the entire dispute was to be referred to arbitration.  She did not deal with Friedman’s letter to AFSA, also copied to Siya Cokile Inc, in which the dispute was referred to arbitration.  As the instructing attorney she would have had the knowledge to deal fully with the correspondence between Friedman and Siya Cokile Inc and explain properly why in spite of this correspondence she was not party to an agreement to refer the disputes to arbitration.

[31] Her response to Friedman’s allegation that her firm received Pro-Khaya’s statement of claim was to say:

“I deny that the fact that the statement of claim was served at our offices means anything.”

This is a startling statement. If indeed there had been no agreement to refer the disputes to arbitration, the service of the statement of claim on her firm cried out for an explanation.  She did not explain her inaction which she would have been able to do.  As an attorney her first reaction would have been to notify Friedman and AFSA that there was a mistake, or seek an explanation from the Trust.

[32] Malgas did not deny that she participated in the teleconference held on 5 May 2015 but denied that it was a pre-arbitration conference in connection with this matter.  In her mind, so she stated, when she agreed to file a statement of defence, she thought it was in respect of another matter.  This explanation called for elaboration which was within her knowledge.  She did not deny that the other parties to the teleconference were the Arbitrator Trisk SC and Friedman.  She did not deny receiving the letter from the Arbitrator in which he directed that the teleconference in this matter was to be held on 5 May 2015.  The other matter was before a different arbitrator.  It was open to her to explain who she thought she was speaking to during the teleconference, and why, in view of the Arbitrator’s directive, she mistakenly thought the teleconference related to another arbitration before a different arbitrator.  She agreed that she had told AFSA that the money paid to her by the Trust for arbitration fees was for another matter.  She failed however to deal with Friedman’s e-mail to her in which he pointed out that she had delivered the wrong statement of defence.  This e-mail, which bore the heading “Pro-Khaya’s statement of defence” made it clear that there were two matters. 

[33] Malgas failed to deal with the Arbitrator’s letter of 22 May 2015, addressed to her and Friedman, in which he pointed out the failure of the Trust to deliver a relevant statement of defence and that Pro-Khaya was entitled to request him to enrol the matter on notice to both parties.  She failed to deal with the Arbitrator’s statement in his award that he had written to her and Friedman informing them that the hearing of the arbitration would proceed on 9 and 10 June 2015.  She did not deal with Friedman’s allegations that Pro-Khaya’s expert summary and the heads of argument containing the amendments to the statement of claim had been sent to her.  Significantly, she did not deny receiving any of this correspondence.

[34] In Wightman t/a JW Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; 2008 (3) SA 371 (SCA) Heher JA said the following at para [13]:

“A real, genuine and bona fide dispute of fact can exist only where the court is satisfied that the party who purports to raise the dispute has in his affidavit seriously and unambiguously addressed the fact said to be disputed.  There will of course be instances where a bare denial meets the requirement because there is no other way open to the disputing party and nothing more can therefore be expected of him.  But even that may not be sufficient if the fact averred lies purely within the knowledge of the averring party and no basis is laid for disputing the veracity or accuracy of the averment.  When the facts averred are such that the disputing party must necessarily possess knowledge of them and be able to provide an answer (or countervailing evidence) if they be not true or accurate but, instead of doing so, rests his case on a bare or ambiguous denial the court will generally have difficulty in finding that the test is satisfied.  I say ‘generally’ because factual averments seldom stand apart from a broader matrix of circumstances all of which needs to be borne in mind when arriving at a decision.”

[35] This dictum is particularly apposite in the present matter.  I have pointed out Malgas’ failure to deal with matters of which she would have had knowledge.  Her bare denial of detailed allegations, which were supported by correspondence, and absence of an explanation for her apparent ignorance of common cause events, do not in my view create a bona fide and genuine dispute of fact.  In the context of the common cause or undisputed correspondence and events, from the time of Friedman’s letter of 10 June 2014 onwards, culminating in the arbitration proceedings, her denial of the agreement to refer the disputes to arbitration is in my view untenable and far-fetched in the extreme and can be rejected outright.[3] 

[36] I may therefore decide this particular dispute on the assumption that Friedman’s account of the agreement to refer the disputes to arbitration is substantially true and correct.  (See Wightman t/a JW Construction v Headfour (Pty) Ltd and Another (supra) at para [23].)

[37] What did the Trust itself say about this dispute?  Ntsumbedzeni repeated what was stated in paragraph 3 of Ledwaba Mazwai Inc’s letter of 5 August 2015 (see para [19] above), and stated that the Trust was not aware of the appointment of the Arbitrator, the notices and pleadings exchanged in the arbitration, and the date of the arbitration.  He denied that the High Court proceedings were consensually referred for arbitration.  As already mentioned he referred to Friedman’s letter of 10 June 2014, which was addressed to Baloyi, and pointed out that the letter did not suggest that the High Court proceedings were consensually referred to arbitration. 

[38] In his replying affidavit he responded to Friedman’s affidavit.  His response to Friedman’s allegations concerning the correspondence with Siya Cokile Inc, the agreement with Malgas of 8 July 2014, and the service of the statement of claim on Malgas’ firm was to refer to Malgas’ affidavit in which she dealt with her involvement in the matter.  It must be remembered that Malgas’ response in regard to these allegations was a bare denial or a failure to deal with matters of which she would have had knowledge and could have explained.  Ntsumbedzeni did not deal with the contents of Siya Cokile Inc’s letters which indicated that Malgas was taking instructions from the Trust and had received instructions from the Trust with regard to arbitration.  If no such instructions had been given, this fact would have been within Ntsumbedzeni’s or some other official’s knowledge.  With regard to Friedman’s allegations of what transpired after the conclusion of the agreement with Malgas, including the teleconference and the wrong statement of defence, Ntsumbedzeni referred to Malgas’ affidavit.  If the other arbitration also involved the Trust, he could have elaborated on Malgas’ explanation of her mistake, and for example confirmed that there was another matter and that the Trust had paid AFSA’s fees for the other matter.  Instead he was at best reticent.  In his affidavit Friedman stated that the Trust’s attempt to excuse its default was inadequate and that no explanation was given of why the Trust never learned of the arbitration, despite being legally represented.  In response, Ntsumbedzeni referred again to Malgas’ affidavit.

[39] It was the Trust itself which raised lack of jurisdiction in the opposing affidavit to the summary judgment application, relying on the adjudication clause.  One would imagine that after the judgment in the summary judgment application, the Trust through its officials would have enquired from its attorneys about further steps, either in the litigation or through arbitration.  Friedman’s letter of 10 June 2014 declaring a dispute and recording an intention to refer outstanding issues to arbitration, was addressed to Baloyi.  Ntsumbedzini is silent on the Trust’s attitude to this letter or the fate of the High Court action.  There was no affidavit from Baloyi.  The opposing affidavit in ithe summary judgment application revealed numerous disputes, involving large sums of money.  In these circumstances it was not for the Trust, a public entity, to sit back and do nothing.

[40] In my view the inadequacy of Ntsumbedzeni’s affidavit concerning the aspects mentioned, the Trust’s inertia, and the gross negligence on the part of Malgas in allowing the arbitration to proceed by default, cannot avail the Trust.  In the light of these factors, it cannot rely on its total ignorance of the arbitration proceedings, if that was indeed the case.

Lis alibi pendens

[41] This was a further defence, in that the High Court action was still pending.  This defence is really tied up with the dispute about referral to arbitration.  According to Friedman once the agreement to refer the disputes to arbitration (which included the disputes in the action and the costs of the action) was concluded the action was abandoned and he and Malgas agreed that the High Court proceedings were of academic interest.  Malgas denied that she agreed that the High Court proceedings were of academic interest, but omitted to state precisely what the Trust’s interest was, if it was not academic. 

[42] Counsel for Pro-Khaya referred me to the judgment of Lopes J in Body Corporate of Valence House v Malani NO and others [2015] JOL 33407 (KZD).  In that matter the applicant had instituted action in the Magistrate’s Court against the respondents for payment of levies and the respondents pleaded that the matter should have been referred to arbitration.  An arbitration award was obtained in due course in favour of the applicant and the applicant applied to the High Court for an order that the arbitration award be made an order of court.  One of the defences raised was lis alibi pendens in that the Magistrate’s Court proceedings had not been finalised.  Lopes J said the following at p 10:

“Inasmuch as it may be suggested in this application that the body corporate has not specifically set out in its papers that the Magistrate’s Court actions have been withdrawn, it could hardly be suggested that the body corporate is able to continue with those actions on the basis of the original causes of action.  Its conduct in bringing the arbitration proceedings and persisting with this application evinces an unequivocal intention to abandon the actions relied on in the Magistrate’s Court.”

[43] The same applied in the present case.  I have accepted that there was an agreement to refer all the disputes between the parties to arbitration.  The High Court claim was included in these disputes.  Pro-Khaya proceeded to arbitration, led evidence before the arbitrator and obtained an award.  It now seeks to have that award made an order of court.  In my view such conduct demonstrates an unequivocal intention not to resort to the High Court action.  The defence of lis alibi pendens cannot succeed.

COUNTER-APPLICATION

[44] Section 33 (1) of the Act provides:

Setting aside of award

(1)  Where

(a)  any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or

(b)  an arbitration tribunal has committed any  gross irregularity in the  conduct of the arbitration proceedings or has exceeded its powers; or

(c)  an award has been improperly obtained,

the court may, on the application of any party to the reference after due notice to the other party or parties, make an order setting the award aside.”

During argument Counsel for the Trust indicated that the Trust relied on the provisions of s 33 (1) (b) and (c).

[45] Ramsden The Law of Arbitration at 202 says the following with regard to the ground that the arbitrator committed a gross irregularity in the conduct of the proceedings (authorities omitted):

“The ground of review envisaged by the use of the phrase gross irregularity in the conduct of arbitration proceedings in s 33(1)(b) of the Arbitration Act relates to the conduct of the proceedings and not the result thereof.  Furthermore, every irregularity in the proceedings will not constitute a ground for review under s 33(1)(b) of the Act.  In order to justify a review on this basis, the irregularity must have been of such a serious nature that it resulted in the aggrieved party not having his case fully and fairly determined.  An arbitrator is always entitled to be wrong on the merits and a wrong interpretation of an agreement does not amount to a misconception of the nature of the enquiry and therefore to an irregularity.

The court must be satisfied that the irregularity caused a substantial injustice.  Only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the court to take action.  The ability to set aside an award due to a gross irregularity is really designed as a long stop, only available in extreme cases where the tribunal has gone so far wrong in its conduct of the arbitration that justice calls out for it to be corrected.”

[46] With regard to the ground that the arbitrator exceeded his powers, in Telecordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 at para [52] Harms JA referred with approval to what was said by Lord Steyn in Lesotho Highlands Development Authority v Impregilo Sp A [2005] UKHL 43 in para [24] as follows:

“But the issue was whether the tribunal ''exceeded its powers'' within the meaning of s 68(2)(b) [of the English Act]. This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vesting in the tribunal no excess of power under s 68(2)(b) is involved. Once the matter is approached correctly, it is clear that at the highest in the present case, on the currency point, there was no more than an erroneous exercise of the power available under s 48(4). The jurisdictional challenge must therefore fail.”

[47] In Shoprite-Checkers (Pty) Ltd v Ramdaw NO & others [2000] 7 BLLR 835 (LC), a review of an arbitration award in terms of s 145 of the Labour Relations Act 66 of 1995, Wallis AJ (as he then was) said the following at para [54]:

“Reverting to the general principles governing reviewability of awards the last situation is the case where an award has been improperly obtained. There is no authority in our courts on what this means presumably because no case has arisen where a substantial contention was advanced that an award should be set aside on this ground. In my view, if one looks at the structure of section 33(1) of the Arbitration Act it is clear that this head of review covers matters which relate primarily, if not entirely, to conduct on the part of the successful party to the arbitration which would justify the setting aside of the award. Thus an award procured through fraud or the subornation of perjury could be set aside on this ground (cf Makings v Makings 1958 (1) SA 338 (A)).”

[48] The Trust’s grounds for setting aside the award were:

a.    The trustees were not properly cited.

b.    No dispute was referred to arbitration.

c.    The amendment to Pro-Khaya’s statement of claim was improper.

d.    The arbitrator exceeded his powers in awarding the costs of the High Court action.

e.    The arbitrator applied the wrong interest rate in his award.

Trustees not properly cited

[49] The citation of the Trust in the arbitration was the same as that in this application.  I have already dealt with this point.

No dispute was referred to arbitration

[50] It was contended that the disputes recorded in Friedman’s letter of 10 June 2014 were not disputes but expressions of dissatisfaction.  Even if they were disputes and were properly referred, the Arbitrator had no jurisdiction to decide any disputes other than those contained in the letter of 10 June 2014.  The statement of claim, so it was contended, expanded the ambit of disputes and the Arbitrator consequently exceeded his jurisdiction in making the award which he did. 

[51] I have already accepted that the disputes which were referred for arbitration were those orally agreed between Friedman and Malgas on 8 July 2014.  These disputes were, as Friedman said, “the entire dispute between the parties from beginning to end”.

[52] In Telecall (Pty) Ltd v Logan [2000] ZASCA 97; 2000 (2) SA 782 (SCA) at para [12] Plewman JA said the following:

“I conclude that before there can be a reference to arbitration a dispute, which is capable of proper formulation at the time when an arbitrator is to be appointed, must exist and there can not be an arbitration and therefore no appointment of an arbitrator can be made in the absence of such a dispute.  It also follows that some care must be exercised in one’s use of the word ‘dispute’.  If, for example, the word is used in a context which shows or indicates that what is intended is merely an expression of dissatisfaction not founded upon competing contentions no arbitration can be entered upon.”

[53] In Williams v Benoni Town Council 1949 (1) SA 501 (W) Roper J stated at 507:

“A dispute exists when one party maintains one point of view and the other party the contrary or a different one.”

[54] I was referred to the English case of Collins (Contractors) Limited v Baltic Quay Management (1994) Limited [2004] EWCA Civ 1757 in which the question of whether or not a dispute existed was considered.  At para 63 Clarke LJ said:

“I entirely accept that all depends on the circumstances of the particular case.  I would, in particular, endorse the general approach that while the mere making of a claim does not amount to a dispute, a dispute will be held to exist once it can reasonably be inferred that a claim is not admitted.”

[55] In the present matter I am satisfied that what was referred to the arbitrator was not merely an expression of dissatisfaction, that there were competing contentions, that contrary points of view had been maintained, and that it could reasonably be inferred, if it was not directly apparent, that Pro-Khaya’s claim was not admitted.

[56] The Trust set out in its opposing affidavit to the summary judgment application a number of defences which made it clear that there were many areas of dispute between the parties, amongst which importantly were that no payments were going to be made and that the final account would not be approved.  In the latter event, Pro-Khaya would not be paid the amount owing in terms of a properly issued final account.  These defences, as well as the proposed counterclaim, widened the scope of Pro-Khaya’s claim in the action and properly fitted the description of the entire dispute between the parties.  It was clear that the Trust was not admitting any claim by Pro-Khaya.  In addition Friedman and Malgas agreed that the costs of the High Court action would be included in the disputes which were referred.  Not only were disputes apparent from the opposing affidavit, but, having accepted Friedman’s evidence of the agreement with Malgas, the respective attorneys also agreed that the disputes existed.  The Arbitrator found that he was unable to issue a final account, as had been claimed by Pro-Khaya.  However he considered himself empowered and obliged to afford Pro-Khaya the relief which would have formed the subject matter of properly issued certificates and a competently formulated final account.  Pro-Khaya’s expert had prepared a draft final account and the Arbitrator dealt in his award with the elements of this draft account and awarded a specific sum of money, interest, costs of the arbitration, costs of the High Court action, fees and costs associated with the arbitration, including the costs paid by Pro-Khaya to AFSA, and the fees of Pro-Khaya’s expert.  This ground of review cannot succeed.  The Arbitrator did not exceed his powers. 

Amendment of statement of claim

[57] According to the Arbitrator’s award, at the conclusion of the proceedings on 10 June 2015 the hearing was postponed sine die to allow Pro-Khaya an opportunity to amend its statement of claim.  Article 11.2.13 of the AFSA rules provides that an arbitrator is empowered to permit the amendment of any pleading or other document (other than an affidavit) delivered by a party.   

[58] It was contended on behalf of the Trust that the amendment was in effect a new dispute which had not been referred to arbitration and consequently the arbitrator had no jurisdiction to determine this new dispute.  He accordingly, so it was contended, committed a gross irregularity or exceeded his powers.

[59] In its original statement of claim Pro-Khaya sought approval and issue of the final account in the sum of R9 921 054.56.  In its amended statement of claim it sought approval and issue of the final account, and an order that the Trust be liable to pay Pro-Khaya R10 877 268.57, as calculated in the final account summary which was annexed to the amended claim.

[60] In support of this contention, Ntsumbedzeni reproduced Friedman’s summary of the amendment which was contained in Pro-Khaya’s heads of argument.  It is apparent from that summary that one of the interest claims was reduced and other interest claims had been recalculated.  The increased interest amounts had been calculated in accordance with the terms of the JBCC agreement.  The Trust maintained that the amendment was not merely a mathematical calculation but a reformulation of the statement of claim to align it with the terms of the JBCC agreement.

[61] I do not agree with this latter contention.  As Friedman pointed out, and as the Arbitrator’s award made clear, the claim was always for the approval of the final account.  The amounts would have had to be calculated in accordance with the terms of the JBCC agreement.  Those terms were known to both parties and the proposed amendment was served on the Trust’s attorneys, without apparent objection.  In allowing the amendment the Arbitrator did not commit an irregularity (let alone a gross one) and did not exceed his powers.

Improper interest rate

[62] The Arbitrator awarded interest on the sum of R6 779 931.00 at the prescribed legal rate of 15.5% per annum from 1 July 2015 to date of payment.  (The sum of R10 777 268.57 was made up of R6 779 931.17 and interest of R4 097 337.40.  R6 779 931.17 was the difference between the total capital costs of the contract and payments made.)  The Trust contended that such a rate was in conflict with what had been agreed in the JBCC agreement.  It was the principal agent who had to calculate the interest and not the Arbitrator, and the Prescribed Rate of Interest Act 55 of 1975 was not applicable.  The Arbitrator, so it was submitted, therefore committed a gross irregularity in applying the wrong interest rate. 

[63] Clause 41.1.3 of the JBCC agreement provided that “interest” meant the interest rate in terms of legislation applicable to the State.  Friedman stated that Pro-Khaya had sought interest on all unpaid certificates from the date that they became due and that such interest was calculated at the rate of 15.5% per annum from due date to date of payment.  This was the prevailing rate at the time payment was due.  For the purposes of the arbitration, Pro-Khaya had calculated interest at 15.5% per annum on all unpaid certificates, up to 30 June 2015.  The Arbitrator’s award provided that interest at the same rate would continue to be payable on all unpaid certificates from 1 July 2015 to date of payment.  The due dates for payment occurred prior to the amendment of the Prescribed Rate of Interest Act which reduced the legal rate to 9% per annum with effect from 1 August 2014.  The correct rate was that which applied on the due date, namely 15.5% per annum.  I agree that the Arbitrator applied the correct interest rate.  Even if the Trust’s submissions were correct, the Arbitrator would not have committed a gross irregularity such as that contemplated in the extract from Ramsden referred to above.

High Court costs improperly awarded

[64] The Trust’s submission here was that the Arbitrator exceeded his powers by awarding these costs to Pro-Khaya.  Reference was made to Article 13 of the AFSA rules which deals with the costs of the arbitration.  It was submitted that the High Court costs were not covered by Article 13.  However the High Court costs awarded by the Arbitrator formed part of the disputes which were by agreement referred to arbitration.  In that case I am of the view that it was competent for the Arbitrator to award those costs and he did not exceed his powers.   

[65] No grounds were advanced to support a finding that the award was obtained improperly, as envisaged in s 33 (1) (c) of the Act.

CONCLUSION

[66] In the result, the Trust failed to establish any grounds for the setting aside of the arbitration award.  I am satisfied that Pro-Khaya established that the award could “properly form the subject of an order of court”.  (See Vidavsky v Body Corporate of Sunhill Villas 2005 (5) SA 200 (SCA) at 208B.)

[67] The following order is made:

[67.1]    In terms of s 31 (1) of the Arbitration Act 42 of 1965 the award of the arbitrator Mr Kevin Trisk SC published on 27 July 2015 is made an order of court.

[67.2]  The Respondent is to pay the Applicant:

[67.2.1]      The sum of R10 877 268.58;

[67.2.2]      Interest on the sum of R6 779 931.17 at the rate of 15.5% per annum from 1 July 2015 to date of payment.

[67.2.3]      The Applicant’s costs of suit on the scale as between attorney and client, as agreed by the parties’ representatives within 21 days of the delivery by the Applicant to the Respondent or the Respondent’s attorneys, as the case may be, of the Applicant’s Bill of Costs or, in the event of agreement not being reached within the aforesaid period or on the expiration of the twenty first day after delivery of the Bill of Costs aforesaid as taxed by the Taxing Master of the High Court of the Eastern Cape Local Division in Port Elizabeth, which costs are to include:

[67.2.3.1] The costs of the High Court proceedings in the Eastern Cape Local Division in Port Elizabeth under case number 599/2014; and

[67.2.3.2] The fees and costs associated with the arbitration, including all costs paid and payable by the Applicant to AFSA; and

[67.2.3.3] The expert fees and qualifying fees of Mr Anton Rousseau which fees are to include the costs incurred by the Applicant in having Mr Anton Rousseau attend to the preparation of the draft Final Account.

[67.3]  The respondent is to pay the costs of the application such costs to include the costs of two counsel.

[67.4]  The application to strike out is dismissed with no order as to costs.

[67.5]  The counter-application is dismissed with costs, such costs to include the costs of two counsel.

___________________

J M ROBERSON

JUDGE OF THE HIGH COURT

Appearances:

 

For the Applicant:  Adv S C Rorke SC, with Adv M Beneke, instructed by Friedman Scheckter Attorneys, Port Elizabeth

 

For the Respondent:  Adv JD Huisamen SC, instructed by Andile Ngqakayi Inc, Port Elizabeth

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