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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

1. Reportable:  No

2. Of interest to other judges: No

3. Revised: Yes, 28 February 2020

                 CASE NO: 37058/2018

 

ln the matter between:

AVENG (AFRICA) PTY LIMITED

(In its Aveng Rand Roads Division)                                                                                   Applicant

and

LUQAQAMBO CIVIL CONTRUCTION CC                                                               Respondent

Application by a plaintiff to stay an action based on an arbitration clause.

 

 

JUDGMENT

DE VILLIERS, AJ

[1]             The applicant (the plaintiff) seeks an order:

[1.1]            Extending the time period specified in section 6 of the Arbitration Act 42 of 1965 for the launching of the application, relying on section 38 of that act;

[1.2]            Staying the action pending the final determination of the dispute between the parties in arbitration proceedings;

[1.3]            Ordering that the pleadings will serve as the pleadings in the arbitration proceedings;

[1.4]            Ordering that the costs of the action are to be costs in the arbitration;

[1.5]            Ordering that the respondent must pay the costs of the application in the event of opposition.

[2]             This application resulted in another unexpected day in the opposed motion court in Johannesburg. The matter seemed simple, as the respondent (the defendant) had delivered a special plea taking the point that the matter ought to have gone on arbitration. This defence prompted the application, and that it was common cause that the matter ought to go to arbitration. One would then have expected an unopposed application for the matter to be referred to arbitration. Still, the matter served before the court as an opposed application.

[3]             It seemed that the defence to the application was largely premised on an argument that the special plea had to be adjudicated first before proceedings should commence in arbitration proceedings. The court explored the dispute in interaction with counsel in order to establish what the issue really was. The respondent thereupon abandoned the special plea. One would then have expected that the need for a referral to arbitration would fall away, and a short argument on costs would follow.

[4]             The parties were given the opportunity to discuss the future conduct of the matter. Upon resuming the hearing, the applicant persisted with its application, and the respondent persisted with its opposition as it, upon abandoning its special plea, wanted the matter to continue in court.

[5]             Every matter must be decided on its own facts. Before the arbitration clause in the agreement, and the applicable law are discussed, it is useful to set out the chronology of material events:

[5.1]            On 8 October 2018 the applicant issued a simple summons seeking judgment against the respondent in the sum of R2 553 775.18 in terms of a written agreement for the purchasing of certain construction material. It was a simple “goods sold and delivered” type of claim;

[5.2]            After some interlocutory skirmishes, the applicant delivered its declaration on 7 February 2019;

[5.3]            The respondent served its plea on 1 March 2019, containing a special plea of non-compliance with clause 9 of the agreement (the arbitration clause);

[5.4]            The applicant replicated to the special plea on 25 March 2019 insisting that the matter be heard in the High Court. The replication was to the effect that the applicant had an election to proceed in the High Court in terms of the wording of the arbitration clause, which it did, and that “it persists with this action”;

[5.5]            On 7 June 2019 the respondent gave notice of its intent to amend its plea in order to introduce a counterclaim for damages in the sum of R1 773 267.58 for supplying construction material of a poor quality;

[5.6]            On 12 June 2019 the applicant wrote the first letter calling for a referral to arbitration;

[5.7]            On 19 July 2019 the respondent amended its plea to introduce the counterclaim;

[5.8]            The applicant delivered its plea to the counterclaim on 8 August 2019;

[5.9]            Pleadings closed, and discovery had to take place. Neither party has done so, or called for discovery, or applied for a trial date. Both could do so.

[6]             The applicant’s attorney states in the founding affidavit:

“During June 2019, and after having considered the issues raised in the pleadings and having obtained instructions from the applicant, a decision was reached that it would be in the interests of the parties to refer the dispute between the parties to arbitration.”

[7]             This is the complete explanation for the plaintiff’s change in its stance. On 25 July 2019 the present application was launched. The applicant contends that there are specifically two reasons why the matter should be referred to arbitration:

[7.1]            “The dispute between the parties is a factual one and is not one which concerns a question of law”; and

[7.2]            “The matter will entail the need for expert evidence for both parties to be led. Although the rules of court make provision for this, the matter if arbitrated, can be expedited and the dispute between the parties can be finalised on a relatively quick basis”.

[8]             There are two more matters to mention. The respondent did not assist the applicant in its attempts to refer the matter to arbitration, including agreement on an arbitrator. There is no suggestion that even the applicant contemplates an arbitration much different to a hearing in court. The three arbitrators proposed by the applicant were three commercial, senior advocates.

[9]             The arbitration clause is uniquely worded. It reads (underlining added):

“ 9. Arbitration

9.1 We have the option to refer any dispute arising from or in connection with this Agreement to arbitration, which arbitration shall bind both us and you.

9.2 The arbitrator must be a person agreed upon by the parties or failing such agreement, appointed by Registrar for the time being of the Arbitration Foundation of Southern Africa, who shall then finally resolve the dispute or issue in accordance with the rules of the Arbitration Foundation of Southern Africa.

9.3 We may elect where the arbitration is to be held.”

[10]          Clause 9 clearly does not provide for compulsory arbitration. It provides for arbitration at the election of the applicant. Usually arbitration clauses provide for compulsory arbitration. A question to be answered in this judgment is whether the applicant could exercise its option to refer the matter to arbitration after it had elected earlier to not do so. The wording of clause 9 (the language used) does not suggest that such an election could be made more than once, or at any time. In context, it is an election to made at the time when proceedings are instituted. At that time one or the other course of action must be taken. This distinguishes this matter from most arbitration clauses where it is an unqualified right to demand that the matter proceed as arbitration proceedings without a prior election that has to be made. Such an interpretation is sensible and does not undermine the apparent purpose of the clause - to give an election to the applicant.

[11]          Quite clearly clause 9 is not a clause that provides for compulsory arbitration. The defence by the respondent that the applicant has, in breach of this clause, commenced proceedings in the High Court, had no merit. Its defences that the costs to date in the action proceedings were wasted costs and first had to be paid, also had no merit. Those costs were the normal costs to take instructions and to prepare pleadings. Unless those pleadings were of no use in an arbitration, a case not made out, they were not wasted. The other practical objections to a referral to arbitration are addressed later.

[12]          This brings one to the application of the law. The two sections in the Arbitration Act expressly relied upon by the applicant in bringing this application are sections 6 and 38. They read as follows (underlining added):

                                    “6 Stay of legal proceedings where there is an arbitration agreement

(1) If any party to an arbitration agreement[1] commences any legal proceedings in any court (including any inferior court) against any other party to the agreement in respect of any matter agreed to be referred to arbitration, any party to such legal proceedings may at any time after entering appearance but before delivering any pleadings or taking any other steps in the proceedings, apply to that court for a stay of such proceedings.

(2) If on any such application the court is satisfied that there is no sufficient reason why the dispute should not be referred to arbitration in accordance with the agreement, the court may make an order staying such proceedings subject to such terms and conditions as it may consider just”;

and

“38 Extension of periods fixed by or under this Act

The court may, on good cause shown, extend any period of time fixed by or under this Act, whether such period has expired or not.”

[13]          It does not seem to me that section 6 covers the present case for two reasons:

[13.1]         One, clause 9 of the agreement does not provide for compulsory arbitration, and hence section 6 does not refer to this type of case. It does not apply as this is not an action “in respect of any matter agreed to be referred to arbitration”. The plaintiff had an option to bring the matter to court, and the defendant could not object thereto on a contractual ground; and

[13.2]         Two, read in context, section 6 does not apply to a plaintiff. The party taking issue with court proceedings is not the party who instituted the action, but the one who must make the decision to object “before delivering any pleadings or taking any other steps in the proceedings”. It would be nonsensical to refer to “entering appearance” if the legislature intended to refer to the plaintiff (who had already elected to proceed by action).

[14]          This second ground for finding that section 6 does not apply to a plaintiff, is in accordance with the content of judgments on the application of section 6. I was referred to Parekh v Shah Jehan Cinemas (Pty) Ltd and Others 1980 (1) SA 301 (D). Didcott J formulated the principles clearly at 305G-H (underlining added):

“… Arbitration itself is far from an absolute requirement, despite the contractual provision for it. If either party takes the arbitrable disputes straight to Court, and the other does not protest, the litigation follows its normal course, without a pause. To check it, the objector must actively request a stay of the proceedings. Not even that interruption is decisive. The Court has a discretion whether to call a halt for arbitration or to tackle the disputes itself. When it chooses the latter, the case is resumed, continued and completed before it, like any other. Throughout, its jurisdiction, though sometimes latent, thus remains intact. That all this is so emerges from such cases as Davies v South British Insurance Co  (1885) 3 SC 416; Walters v Allison  1922 NLR 238; Rhodesian Railways Ltd v Mackintosh  1932 AD 359; Yorigami Maritime Construction Co Ltd v Nissho-Iwai Co Ltd 1977 (4) SA 682 (C).”

[15]          Similarly in Kathmer Investments (Pty) Ltd v Woolworths (Pty) Ltd 1970 (2) SA 498 (A), the court held at 504H “the onus to satisfy the Court that it should not, in the exercise of its discretion, refer the matter to arbitration, is on the party who instituted the legal proceedings in Court”. This reflects a reading of section 6 that is procedure made available to a party resisting the claim, such as a defendant, not a plaintiff. Universiteit van Stellenbosch v J A Louw (Edms) Bpk 1983 (4) SA 321 (A) at 334A expressly refers to a defendant objecting to the court hearing the action.

[16]          The applicant’s reliance on section 6 was therefore misplaced. The section does not provide a remedy to the applicant. Had this been the only issue for decision, the application had to fail.

[17]          Against this background the respondent referred me to Aveng (Africa) Ltd (formerly Grinaker-Lta Ltd) t/a Grinaker-LTA Building East v Midros Investments (Pty) Ltd 2011 (3) SA 631 (KZD), a judgment by Wallis J. In that case the plaintiff had also sought, as in this case, that its instituted action be stayed pending a referral to arbitration. It does not seem that section 6 was considered. I agree with the findings in the judgment that the modern approach is “to respect the parties' autonomy in concluding the arbitration agreement, and to minimise the extent of judicial interference in the process”. However, the facts of this matter are different, as the parties had not agreed to compulsory arbitration. In issue in this case is if the applicant could still elect to stay the action it has instituted, and to proceed to arbitration. Wallis J was not prepared to find that the plaintiff had waived its right to insist on arbitration by commencing court proceedings (paras 15-19). He found that the plaintiff was not precluded from raising a referral to arbitration at a later stage - a decision for which there may well be proper grounds as litigation unfolded. The present case is different, in issue is not the waiver of a right to enforce a referral to arbitration, but rather, if there was an election not to proceed, arbitration is a final one. The enforceable right arises after the election has been made. Ultimately the case before Wallis J was decided on a breach of contract point. Wallis J found that by instituting and staying the action, the plaintiff breached the arbitration clause. Being in breach, it cannot enforce the arbitration agreement (paras 20-21).

[18]          I point out that the Supreme Court of Appeal in Kathmer Investments (Pty) Ltd v Woolworths (Pty) Ltd 1970 (2) SA 498 (A)at 505B-D found that a party who had clearly elected (consciously failed) not to rely on an arbitration clause “must be deemed to constitute an abandonment by (that party) of that relief”.

[19]          The respondent referred the court to the Aveng case, and it no doubt influenced the numerous references in the argument to the applicant being in breach of the arbitration clause. I have already found that this defence was misconceived. The matter does not end there. Swain J differed from the Aveng case in BDE Construction v Basfour 3581 (Pty) Ltd 2013 (5) SA 160 (KZP) at paras 9-10. He found that the breach was condoned where the defendant did not object to the breach and concluded in para 12:

“I accordingly respectfully disagree with and conclude that Wallis J was wrong in concluding that where a party to an arbitration agreement commences litigation in breach of the arbitration agreement, to which the other party to the arbitration agreement elects not to seek a stay of such proceedings, the party instituting such proceedings is precluded from seeking a stay of those proceedings and must abandon them, before being able to refer the dispute to arbitration, in terms of the arbitration agreement.”

[20]          Prinsloo J in Kleinfontein Spaar en Krediet Kooperatief Beperk v Schmitz [2016] ZAGPPHC 944 followed BDE Construction. I am bound by Kleinfontein Spaar en Krediet, unless I find it to be clearly wrong, or distinguishable. It is distinguishable, as already pointed out. In addition, the respondent did not condone any breach.

[21]          On my interpretation of clause 9, the applicant has no right to demand a referral to arbitration. I have found that section 6 is not available to him. If I am wrong about clause 9, does the applicant have another remedy?

[22]          Section 6 limits the statutory right to time periods, it does not enable the proceedings - other than proceedings in terms of the act. The so-called Common Law based special plea of a binding arbitration agreement, could still be raised. Similarly, I can see no reason why a plaintiff could not bring an application to stay the action proceedings and commence with arbitration proceedings. If I am wrong on my interpretation of clause 9, I do not believe that the plaintiff would be non-suited. As the court will have a discretion to continue with the court proceedings (see Parekh v Shah Jehan Cinemas), a case for such a referral will have to be made out.

[23]          It is so that where the defendant then objects to arbitration, having previously agreed in the relevant contract to go to arbitration, exceptional/compelling reasons should be shown. See Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W) at 391F-H. The same applies when a plaintiff seeks to resist an objection by a defendant in terms of section 6 that the matter should go to agreed arbitration. See Universiteit van Stellenbosch at 334A - a very strong case must be made out.

[24]          The difference between this case and other cases involving the enforcement of arbitration clauses, is that those clauses describe an obligatory arbitration process. The present one does not. It gives an election to the applicant to follow the arbitration route or not. I would hesitate to find that the applicant must make out an exceptional/compelling case on the facts of this matter.

[25]          Benevolently read, the respondent, having changed tack after preparing its answering affidavit, was limited in the defences it presented. They include the following terse statements:

[25.1]         “If the matter is referred to arbitration now, both parties will incur legal costs, costs of the arbitrator and costs of the venue and all other costs associated with arbitration proceedings at this stage”; and

[25.2]         “The Applicant can apply for a trial date and avoid for the parties having to incur further unnecessary costs”.

[26]          In addition, clause 9 envisages an arbitration without an appeal - a procedure available on trial to rectify errors.

[27]          The respondent conceded that arbitration proceedings would have been quicker. It is not necessarily my experience, especially not where one has a party or parties reluctant to take the next steps and often the availability of arbitrators and counsel delay hearings. The replying affidavit makes this point:

“Furthermore, the respondent is now manifestly reluctant to refer the dispute to arbitration and is attempting to frustrate the applicant in its claim”.

[28]          Earlier in addressing the chronology, the plaintiff’s case was set out and there were two reasons advanced as to why the matter should be referred to arbitration:

[28.1]         The dispute between the parties is a factual one (a dispute also falling squarely in the competency of judges); and

[28.2]         Expert evidence would have to be led (again, the present procedures in the High Court facilitate the leading of expert evidence and very often, the parties reach agreement in the pre-trial process).

[29]          I also considered that the applicant had previously insisted on trial proceedings as late as in its replication. See Kathmer Investments (Pty) Ltd v Woolworths (Pty) Ltd [supra] at 505F.

[30]          The applicant was taken off-guard by the change in stance by the respondent during the hearing. In that process, it has not made out a case that at this late stage, the action should be stayed. It made out no case that there are demonstrable benefits to arbitration, and there are certainly downsides to such a process. Accordingly, even if I am wrong on my application of clause 9, the application still stands to be dismissed.

[31]          I express no view on the power of this court to impose the current pleadings on AFSA.

[32]          This brings me to costs. The respondent was successful on the day, but only after changing its stance. Under those circumstances, a fair order would be each party to pay their own costs, or to split the award with some costs to go to the applicant and others to the respondent, or to order that the costs be costs in the cause. In my view the latter is the fairest order.

[33]          In the circumstances I make the following order:

1.    The application is dismissed;

2.    Costs are to be cost in the cause.

 

                                                                                  

                                                                                    DP de Villiers AJ

 

Heard on:                  18 February 2020

Delivered on:            28 February 2020

 

On behalf of the Applicant:                      Adv D Block

Instructed by:                                            Adine Abro Attorneys

On behalf of the Respondent:                   Adv SI Vobi

Instructed by:                                            Tselanyane Attorneys Inc

 

 

 

 

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