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[2018] ZAWCHC 26
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Full Score Trading 145 CC v Brocsand (Pty) Ltd and Others (A296/2017) [2018] ZAWCHC 26 (5 March 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
REPORTABLE
In
the matter between:
Case
No:
A296/2017
FULL
SCORE TRADING 145
CC
Appellant
and
BROCSAND (PTY)
LTD
First
Respondent
GLOBAL PACK
TRADING 370 (PTY) LTD
Second
Respondent
TIP TRANS
RESOURCE (PTY) LTD
Third
Respondent
JUDGMENT
DELIVERED ON MONDAY, 5
TH
MARCH 2018
SALIE-HLOPHE,
J:
1] This is an appeal to the full bench
of this division against the judgment of
Desai, J. This appeal proceeds
with his leave. The judgment of the court a quo dismissed an
application by appellant
to compel the first respondent to
arbitration as a result of a contractual dispute.
BACKGROUND:
2]
The appellant is the holder of a mining right in relation to certain
minerals on a property near Malmesbury, Western Cape.
In 2010,
appellant appointed first respondent in terms of an agreement
(“Redhill Agreement”) as the exclusive contractor
to
conduct the mining operations for five (5) years from 1 November
2010, on behalf of appellant. This period ended on 30
October
2015.
3] The agreement aforementioned
provides for mandatory arbitration of disputes, as per, clause 17.1
which reads:
“
A dispute
between the parties relating to any matter arising out of this
agreement or the interpretation thereof, shall be referred
to
arbitration by either of the parties, by way of a notice to the other
party ……..”
4]
Clause 3.2 of the agreement provides for a right of first refusal to
first respondent as contractor, upon expiry of the agreement
(being
30 October 2015), to enter into a new agreement with applicant for
the re-appointment as the contractor to mine the minerals
at the
particular property.
5] On 30 January 2015, appellant
received a written offer by third respondent (“Tip Trans”)
to act as contractor at
the Red Hill mine from 1 November 2015.
It is not in dispute that Tip Trans was aware of the existence of the
right of first
refusal of first respondent. This offer was
signed by Mr. JB. Krige (“Krige”) on behalf of the
appellant.
The reason for signing the offer is in dispute, as
Krige maintains that he signed it in order to make the document more
“formal”
for purposes of presenting same to first
respondent under its right of first refusal. Clause 30 reads as
follows:
“
Die
partye kom ooreen dat hierdie ‘n bindende ooreenkoms is en dat
geen verandering tensy ooreengekom en op skrif gestel,
geldig sal
wees nie.”
[1]
Krige
also acts for the second respondent (“Global Pact”).
Krige and his brother are both the controlling shareholders
of
applicant and Global Pact.
6]
First respondent took the view that as the 30 January 2015 agreement
(“Tip Trans agreement”) was a signed agreement,
it
constitutes a binding agreement and that, consequently, its right of
refusal has therewith been denied or breached. It
thereby
invoked the principle of stepping into the shoes of Tip Trans by
means of a “
unilateral
declaration of intent”
,
with the result that a new contract came into existence between
appellant and Global Pact. The Tip Trans agreement included
Global Pact as a party who has the rights to mine sand at a farm
called Doornkraal. In terms of this agreement, Tip Trans
acquires from Global Pact the right to mine sand at Doornkraal.
7]
First respondent maintains, that, by means of this right of first
refusal, it has effectively been appointed as contractor for
the new
period after 30 October 2015. Appellant disputes this, and
maintains that first respondent’s right of first
refusal, if it
applies, has not been properly exercised as first respondent has not
matched the offer of the new contractor, that
being third
respondent. The appellant views this dispute as one which need
to be adjudicated by way of arbitration as provided
for in the
compulsory arbitration clause.
8] First respondent opposed the
application to submit to arbitration on the basis that although the
underlying dispute between the
parties may in a certain sense have
been triggered by the first respondent’s right of first refusal
– the Red Hill
agreement, – it does not rely directly and
mainly on the contents of that agreement. Instead, it relies on
the document
attached as annexure “JK5” to the founding
affidavit, which is the agreement dated 30 January 2015. Whilst
the
appellant claimed that the document was no more than an offer,
the case for the first respondent was that
ex facie
the
document, it was intended to be a binding agreement. This
agreement not only triggered the right of first refusal, but
also
entitled it to a special remedy, that being, the choice to become a
party to the offending agreement via a unilateral expression
of
intent.
GROUNDS
OF APPEAL
:
9]
That the court a quo had erred in its discretion to disregard a
contractual arbitration clause and that it should have exercised
its
discretion to hold the parties to their agreement to arbitrate the
dispute between them.
10] There exists no compelling reason
to disregard the arbitration clause.
11]
The finding that two parties, namely, the second and third
respondents, who were not parties to the Red Hill agreement
containing
the arbitration clause, had an interest in the outcome of
the dispute to be arbitrated is misplaced.
12]
The agreement signed on 30 January 2015, in terms of which appellant,
second respondent and third respondent agreed on appointing
the
latter as contractor at Red Hill and Doornkraal is not only
severable, but stands to be severed, given the uncontested evidence
that third respondent knew of first respondent’s right of first
refusal in relation to Red Hill.
13]
The finding that the 30 January 2015 agreement is binding, and that
it constitutes a breach of first respondent’s right
of first
refusal, and that no contradictory evidence could be heard by virtue
of the parole evidence rule is misplaced.
14] That the court a quo erred in
finding that there was a conspiracy to sabotage the first
respondent’s right of first refusal.
APPLICABLE
LEGAL PRINCIPLES:
15]
The doctrine, or principle of “unilateral declaration of
intent” upon which first respondent relies, was established
in
the case of
Associated
SA Bakeries (Pty) Ltd v Oryx Vereinigte Backereien (Pty) Ltd
[2]
where it was held, that if a seller concludes a contract of sale with
a third party to a pre-emptive right, the holder of the right
of
pre-emption can, if he or she chooses, unilaterally declare his or
her intention (to purchase the property), and thereby automatically
stepping into the shoes of the third party, binding the owner /
seller to transfer the property to him or her on the same
terms as
concluded with the third party.
[3]
16]
The breach is the “trigger” upon which the first
respondent relies to bring into motion the Oryx principle whereby
it
steps into the shoes of Tip Trans.
17]
Section 3(2)(b) of the Arbitration Act
[4]
reads:
“
(2) The
court may at any time on the application of any party to an
arbitration agreement, on good cause shown-
(a)
…
.
(b)
Order
that any particular dispute referred to in the arbitration agreement
shall not be referred to arbitration;
(c)
…
..”
18]
It has been stated in various authorities dealing with this question,
that a party who wishes to convince the court not to enforce
an
arbitration agreement, bears an “
onus
which is not easily discharged”
,
[5]
that a court should exercise its discretion to refuse arbitration
only when a “
very
strong case”
for its exercise had been made out, and that there should be
“
compelling
reasons”
for refusing to hold a party to his contract to have a dispute
resolved by arbitration.
[6]
19]
The Oryx principle is subject to the doctrine of notice. In
terms of this doctrine, any rights which third parties may
have in
circumstances where the Oryx scenario is invoked, are trumped by the
rights of the person holding the right of first refusal
to the extent
that the third parties had prior knowledge of the right of first
refusal, but nevertheless went ahead and contracted
with the
grantor.
[7]
Fraud is not a requirement. Actual knowledge on the part
of the third party suffices even in the form of
dolus
eventualis
.
[8]
ISSUES
IN DIPSUTE:
20]
The appellant denies that there had been a breach of the Red Hill
agreement, and that the right of first refusal does not apply
in the
present case. However, even if there had been a breach and the
right of first refusal applies, it argues that the
first respondent
has not properly exercised its right in that it did not match the
offer of Tip Trans. The appellant submits
that there exists a
dispute between the appellant and the first respondent which centres
on first respondent’s right of first
refusal as contained in
clause 3.2 of the Red Hill agreement. This, in turn, it is
argued, is a dispute as contemplated in
the arbitration clause,
thereby invoking the mandatory referral to arbitration. The
appellant submits that what is relevant
is merely that a dispute
exists as to whether or not, first respondent can correctly claim
that it had been appointed as the contractor
for the new period.
The dispute is therefore contemplated in the agreement for an
arbitrator to decide.
21]
The appellant argues that the question as to whether there was a
breach or not, and what the consequences thereof are, is a
dispute
for the arbitrator to decide, and this issue falls within the ambit
of the arbitration clause. The case for the appellant
is that
the only issue for a court to decide is whether or not first
respondent should not be held to the arbitration clause, and
whether,
compelling reasons exist for the clause not to be enforced.
22]
The argument for first respondent is that the dispute is wider than
the ambit portrayed by the appellant, and that cogent
and
compelling reasons exist which justified the court a quo in
disregarding the arbitration clause. Further to that, Tip
Trans
and Global Pact Trading have an interest in the outcome of the
dispute (arbitration)
[9]
and, therefore, the arbitration clause should not be enforced.
23] The case for the first respondent
is further that the present case is
sui generis
and, in any
event, every case must be decided on its own particular facts and
with reference to what is required for a just and
equitable outcome.
A legal principle may be quite well-settled, without being trite in
the sense of not being obscure, and
arising frequently in legal
proceedings. The Oryx mechanism, it is submitted, falls into
this category. The application
of the Oryx principle and the
kind of arbitration issue arising
in casu
is a combination
which does not appear to have been decided upon in previous
authorities.
DISCUSSION:
24]
The appellant sought to avoid the first respondent from stepping into
the shoes of Tip Trans, by contending that the 30 January
2015
agreement was in fact only an offer which was made subservient to the
first respondent’s right of first refusal.
In
amplification of the latter, Krige stated in his founding affidavit
that he signed the offer merely for the purposes of making
it appear
more formal. This averment is unsound, which is also disputed
by the first respondent, and falls to be rejected
for the following
reasons as set out below:
24.1] It
contradicts the explicit wording of the document, illustrating that
it could not possibly have been a mere offer.
Clause 30 reads:
“
Die
partye kom ooreen dat hierdie ‘n bindende ooreenkoms is en dat
geen verandering, tensy ooreengekom en op skrif gestel,
geldig sal
wees nie
.”
[10]
The document speaks for itself in establishing that it amounted to a
breach of the first respondent’s right of first refusal.
The conduct of the parties to the 30 January 2015 agreement, further
confirms that the document in question was a binding agreement
in
that they attempted to “cancel” it subsequently. A
signed memorandum from Tip Trans (represented by Mr Pieter
Visser)
confirmed that any such possible agreement was cancelled.
[11]
The very notion of a “cancellation” is consistent only
with the proposition that the 30 January 2015 agreement
was, in fact,
a binding agreement. However, cancellation would have had no
effect. The trigger event had already taken
place by the
conclusion of the agreement between appellant and Tip Trans.
The first respondent had already, by the time of
the purported
cancellation, exercised, in writing, its unilateral declaration of
intent as contained in paragraph 8 of the letter
by the first
respondent dated 21 August 2015.
24.2] There is
nothing in the 30 January 2015 agreement which could support the
version of the appellant that the agreement was
conditional upon the
first respondent’s right of first refusal.
24.3] Appellant
brought the proceedings on motion and the factual dispute in terms of
the rule in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[12]
must be resolved in favour of the first respondent.
25]
The appellant argues, that because of the very fact that it and the
third respondent knew of the first respondent’s right
of first
refusal, they must be taken to have acknowledged it, and to have
concluded the 30 January 2015 agreement subject to such
right of
first refusal. I cannot on these facts find that to be the only
logical conclusion, or inference to be drawn.
The events as it
had unfolded, the wording of the agreement, and the subsequent
conduct of the parties, bring to the fore a far
more probable and
plausible conclusion. The Tip Trans offer (as appellant prefers
to call it), was an agreement concluded
with a view to complicate
matters and thereby obfuscating the first respondent’s ability
to exercise its rights of first
refusal. The latter is in my
view an irresistible inference. The notion that because the second
and third respondents knew
of the first respondents right of first
refusal, they had “contracted” in subservience to such
right is opportunistic
and flies in the face of the equitability that
the doctrine of notice establishes in our law. The fact that
they bore notice
of the first respondent’s right and contracted
with the appellant, triggers the Oryx legal mechanism. Notice
on their
part cannot simultaneously serve to excuse them from the
equitable protection afforded to the holder of the right. It is
the very “notice” which brings into effect the holder’s
rights to take the place of the third party in its contract
with the
grantor of the right.
26]
The dispute and adjudication thereof has evolved beyond the
parameters of the Red Hill agreement and, in particular, the scope
contemplated in its arbitration clause. The breach of the Red
Hill agreement does not stand alone in this case. The
Oryx
principle is engineered by the second agreement of 30 January 2015.
The consequences of the application of the Oryx
mechanism, empowering
the first respondent to step into the shoes of Tip Trans, in fact,
hails from the 30 January 2015 agreement.
The party entering
into a fictitious contract such as the first respondent herein, does
not have to match the offer by a third
party. The first
respondent had stepped into position of the third party, on the same
terms and conditions as soon as it
had exercised its rights by way of
unilateral declaration of intent.
27]
The appellant further argued that the Oryx mechanism, cannot be used
to impose obligations upon the second respondent, specifically,
given
that the latter had no prior dealings and has no contractual relation
with the second respondent. The exact legal consequences
resulting
from the first respondent’s usurp of the rights of the third
parties, in this case, that of second and third respondent
were not
for the court a quo to decide, nor could the plausibility thereof, be
taken into account in determining whether to enforce
the arbitration
clause or not. It is not competent for this court, as a full bench,
to pronounce on the legal arguments advanced
for, and on behalf of
the parties as to the impact that the legal consequences may hold for
the parties. That is for a court
ceased with that issue to
decide.
28]
For the purposes of deciding this matter, it suffice to bear in mind
that appellant, second and third respondents chose to enter
into a
contract where the mining at Red Hill and Doornkraal were mixed up in
one agreement. It is common cause that second
and third
respondents bore notice of the first respondent’s right of
first refusal in respect of mining at Red Hill.
The
consequences of contracting on this basis, and in this manner has the
effect that disputes centred around this agreement would
impact on
them and the adjudication thereof. Given their participation in
the 30 January 2015 agreement and their prior knowledge,
they were
participants in the breach of first respondent’s right. The
fact that they were not parties to the Red Hill
agreement is in my
view irrelevant.
29]
The equity which the underlying remedies seeks to impose in our law
where a grantor of a right contracts with a third party
fully aware
of the rights of an aggrieved would by common sense dictate that such
party cannot excise itself on the basis that
the very events it had
participated in, are now imposing inconvenient, or unfair
consequences for itself. In this case it
does not behove of the
appellant to argue that the third parties with whom it contracted in
breach of first respondent’s
right out to be excised from
adjudication of the dispute. It is artificial to construe that
situation as merely a breach
by the appellant alone of the Red Hill
agreement. The breach by the third parties (not parties to the Red
Hill agreement) is not
a breach in the classical sense where party
“A” has a contractual obligation towards party “B”
and them
simply fails to fulfil them, amounting to party “A”
being the only person in breach. It is axiomatic under the
Oryx
mechanism that the party in breach (that being the grantor of the
right of first refusal) would not have acted alone but must
by
definition have involved a third party. The Oryx principle
operates when the grantor of the right concludes a contract
with a
third party in breach of the right of first refusal and with the
third party having born knowledge of the holder of the
right.
Elementary justice requires that second and third respondents, not
the first respondent, suffer the consequences of
having participated
in an agreement that amounted to a breach of the Red Hill agreement.
In Loureiro and Others v Imvula
Quality Protection (Pty) Ltd
[13]
the Constitutional Court held that: “
the
[harm causing] conduct goes to whether the policy and legal
convictions of the community, constitutionally understood, regard
it
as acceptable. It is based on the duty not to cause harm –
indeed to respect rights – and questions the reasonableness
of
imposing liability.”
Our
law is generally reluctant to recognise pure economic loss claims,
especially where it would constitute an extension of
the law of
delict. Wrongfulness has been established in limited categories
of cases, like intentional interferences in contractual
relations
where the plaintiff can show a right or legally recognised interest
that another had infringed.
[14]
The defendant wrongdoer has been held to become an accessory to the
primary wrong: the breach of contract.
30]
Whilst the issue in casu does not turn on whether fault or
wrongfulness is in question on the part of the second and third
respondents, the recognition in our law to the interference and
“breach” by third parties to a contract, at the very
least, would mean that this dispute ought to be resolved with the
second and third parties being intricate parties in the determination
of the underlying dispute which had arisen between them.
Clearly the dispute has metamorphosed into issues far beyond the
realm of the Red Hill agreement and exceeding the relationship
between appellant and first respondent and the arbitration mechanism
to resolve disputes purely between them as contemplated by its
arbitration clause.
31]
The second and third respondents are necessary parties to the
resolution of the underlying dispute. They cannot be joined
in
arbitration proceedings. The rationale that parties who had
contracted to resolve a contractual dispute via a certain
mechanism
such as arbitration, must be held to such undertaking, and is not
applicable to scenarios where the dispute includes
persons who are
not parties to the arbitration agreement. The court maintains a
discretion, whether to hold a party to arbitration.
I am of the
view that the court a quo correctly exercised its discretion against
arbitration. All the parties in the dispute are
not parties to the
arbitration agreement, thereby, avoiding a multiplicity of
proceedings in different forums which may further
bring conflicting
decisions and increased costs.
32]
The possibility that the dispute between the appellant and the first
respondent may be resolved in favour of the first respondent,
clearly
makes the second and third respondents necessary parties to its
resolution. The test for establishing whether a person
is a
necessary party to certain legal proceedings is whether, that person
has a legal interest in the subject matter of the proceedings
which
may be affected prejudicially by the judgment in those proceedings.
The underlying dispute cannot be said to be a dispute
purely between
the appellant and the first respondent.
33]
The facts and circumstances of this case are compelling factors
against the enforcement of an arbitration clause. The
court a
quo, in my view, was correct in dismissing the application to compel
the first respondent to arbitration proceedings.
The
court a quo had properly exercised its judicial discretion and I
cannot find any basis upon which to interfere therewith.
34]
For the reasons aforesaid and in all circumstances of this case I
would propose an order as follows:
“
The
appeal is dismissed with costs, including the costs of two counsel.”
____________________
SALIE-HLOPHE, J
I
AGREE.
_____________________
STEYN, J
I
AGREE AND IT IS SO ORDERED:
_______________________
ERASMUS, J
CORAM:
ERASMUS, J et STEYN, J et
SALIE-HLOPHE,
J
JUDGMENT
BY:
SALIE-HLOPHE, J
DATE
OF HEARING:
2
FEBRUARY 2018
JUDGMENT
DELIVERED ON:
5 MARCH 2018
COUNSEL
FOR APPELLANT:
ADV. C H J MAREE
INSTRUCTED
BY:
SMIT KRUGER INC.
COUNSEL
FOR RESPONDENTS:
ADV. A LE GRANGE SC
ADV. C CILLIERS
INSTRUCTED
BY:
WERKSMANS INC.
[1]
Translated as: “
The parties agree that this is a
binding agreement and that no variation of it will be valid unless
agreed to between the parties
and reduced to writing.”
[2]
1982 (3) SA 893 (A)
[3]
Commonly known as the Oryx principle
[4]
Act 42 of 1965
[5]
Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales
Co (Pty) Ltd
1971 (2) SA 388
(W), ad 391 B-H, page 753
[6]
Quoted with approval by Coleman J in the matter as per footnote 5
supra the decision of
Rhodesian Railways v Mackintosh
1932 AD
359
and
Halifax Overseas Freighters Ltd v Rasno Export
1958 2
Lloyd’s List Law Rep 145
[7]
Cussons en Andere v Kroon
2001
(4) SA 833
(SCA) paragraphs 9 – 10 and 12 – 13.
See also
Mokone v Tassos
Properties CC and Another
[2017] ZACC 25
[8]
Mathavha NO v Sibeko
2010 JOL 26088
(SCA) paragraph 5
;
Meridian Bay Restaurant (Pty) Ltd and others v Mitchell NO
2011
(4) SA 1
(SCA) paragraph 17
; Anthony and another v Japies and
others
2017 JOL 38806
(WCC) paragraph 24.
[9]
Were the arbitration clause to be invoked and appellant and first
respondent have the dispute decided through arbitration
[10]
Translated as: The parties agree that this is a binding agreement
and that no amendments shall be valid and binding unless agreed
to
by the parties and recorded in writing. Record page 39 –
clause 30 (emphasis own)
[11]
Record page 64 – Annexure to founding affidavit - JK10 –
signed 8 September 2015
[12]
[1984] ZASCA 51
;
1984 (3) SA
623
(A) 634 – 635
[13]
2014 ZACC 4
;
2014 (3) SA 394(CC)
;
2014 (5) BCLR 5111
(CC) at page 53
[14]
Country Cloud Trading CC v MEC, Department of Infrastructure
Development, Gauteng
[2014] ZACC 28