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[2019] ZAWCHC 9
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Seabeach Property Investment No 28 v Nunn (18310/18) [2019] ZAWCHC 9 (22 February 2019)
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IN
THE HIGH COURT OF SOUTH AFRICA
[WESTERN CAPE DIVISION, CAPE TOWN]
REPORTABLE
Case
No: 18310/18
In
the matter between:
SEABEACH PROPERTY INVESTMENT NO 28
(PTY)
LTD Applicant
and
CANDICE LAUREN
NUNN Respondent
JUDGMENT DATED: 22 FEBRUARY 2019
LE
GRANGE, J
:
[1]
In this matter, the Applicant seeks an order that the dispute between
the parties had properly and validly been referred to
arbitration,
alternatively that the dispute is arbitrable and should accordingly
be referred to arbitration by the Court.
[2]
The Respondent has a different view and insists that only a Court can
resolve the dispute. According to the Respondent,
the purported
written agreement entered into between the parties is void
ab
initio
due to a fundamental mistake on her
part that was brought about by the Applicant’s estate agents
which renders the whole
agreement, including the arbitration clause,
null and void.
[3]
The underlying dispute between the parties can be summarised as
follows:
On 28 February 2018
in Cape Town, the Applicant and the Respondent concluded a written
agreement of sale, in terms of which the
Applicant sold and the
Respondent purchased a flat situated at […] B Road, Sea Point,
which included two parking bays and
a roof terrace as exclusive use
areas, for a purchase price of R32 million. The property apart
from the parking bays, consists
of two levels a downstairs area of
318m
2
and
a roof terrace area of 298m
2
which amount in
total to 616m
2
in area. The agreement also contained an arbitration clause, (Clause
13).
[4]
According to the Respondent at the time of signing the sale agreement
she was led to believe by the Applicant’s estate
agents that
the property was 616m
2
in
size and that she would acquire ‘full’ ownership of both
the lower and upper levels thereof. According to the Respondent,
she
only became aware afterwards that the roof terrace was part of the
common property and therefore could not obtain full ownership
of the
298m
2
roof
terrace. The Respondent accepts that the first and or cover page of
the agreement contains a table which sets out the exclusive
use area
and that she initialed next to it (to indicate she read and
understood the contents thereof). However, the Respondent
stated in
her papers that had she read it she would not have understood the
meaning thereof.
[5]
The Respondent is adamant that w
hen signing
the offer to purchase she verily believed - by virtue of the
misrepresentations of the estate agents – that
she was buying,
and would become the owner of, the rooftop terrace. According to the
Respondent
the estate agents’
misrepresentation was made with the intention of inducing the
contract, but she fell short of alleging
any fraud on the part of the
estate agents.
[6]
The estate agents deny the alleged misrepresentation. Furthermore,
they deny the allegation that the sale agreement is void
in view of
the correspondence that was exchanged between the parties.
[7]
The approach adopted by our Courts in deciding whether a dispute
comes within the provision(s) of an arbitration clause in a
contract,
was discussed by the Supreme Court of Appeal, in
North
East Finance (Pty) Ltd v Standard Bank of South Africa LTD
[1]
,
which dealt in particular with the effect fraud has on an arbitration
clause in general.
[8]
The parties, in North
East, entered into a settlement agreement which contained an
arbitration clause. The two issues considered
on appeal were firstly,
whether the arbitration clause could be construed so as to compel
submission to arbitration on whether
the bank was induced by North
East's fraud to conclude the settlement agreement and secondly, if
so, whether the allegations were
wholly unfounded.
[2]
The arbitration clause provided specifically that
'any
dispute . . . including any question as to the enforceability of this
contract
' would be referred
to arbitration.
[9]
Lewis JA, speaking on behalf of the Court in North East, stated in
paras 15 and 16,the following:
“
[15]…[It]
is not, however, necessary (indeed it is not possible, given the
disputes of fact in respect of the alleged fraud)
for this court to
determine whether the settlement agreement was void from inception or
voidable until the bank had elected to
resile. I consider that the
term 'enforceability' refers to both a void and a voidable contract
:
if the parties had intended that the question whether fraud inducing
the contract should be determined by an arbitrator, then he
or she
would determine whether the contract was valid and enforceable, or
voidable or void.”
[16] It is in
principle possible for the parties to agree that the question of the
validity of their agreement may be determined
by arbitration even
though the reference to arbitration is part of the agreement being
questioned. That is suggested in
Heyman
v Darwin’s Ltd
[3]
.
Lord Porter said:
'I think it essential
to remember that the question whether a given dispute comes within
the provisions of an arbitration clause
or not primarily depends upon
the terms of the clause itself. If two parties purport to enter into
a contract and a dispute arises
as to whether they have done so or
not, or as to whether the alleged contract is binding upon them, I
see no reason why they should
not submit that dispute to arbitration.
Equally, I see no reason why, if at the time when they purport to
make the contract they
foresee the possibility of such a dispute
arising, they should not provide in the contract itself for the
submission to arbitration
of a dispute as to whether the contract
ever bound them or continues to do so. They might, for instance,
stipulate that, if a dispute
should arise as to whether there had
been such a fraud, misrepresentation or concealment in the
negotiations between them as to
make a purported contract voidable,
that dispute should be submitted to arbitration. It may require very
clear language to effect
this result, and it may be true to say that
such a contract is really collateral to the agreement supposed to
have been made, but
I do not see why it should not be done.”
[10]
Lewis JA, also reiterated the principle that an arbitration clause
embedded in a fraud-tainted agreement could not stand.
[4]
Having examined the ambit of the arbitration clause in that matter
and what the parties intended by having regard to the purpose
of
their contract (the settlement agreement), it was held by the SCA
that the parties intended that the arbitrator’s role
would only
be to determine disputes in respect of accounting issues, and it was
not intended that the validity or enforceability
of the contract,
which was allegedly induced by fraudulent misrepresentations and
non-disclosures would be arbitrable.
[5]
[11]
In casu
,
it was contended by Applicant’s counsel that the facts in the
present instance are distinguishable from the cases discussed
by the
Supreme Court of Appeal
[6]
as in
both those matters fraud was either common cause or proven by
the aggrieved party who wanted to resile from the arbitration
agreement. It was further argued that in the present instance, the
parties agreed
inter
alia
,
that “
(A)ny
dispute between the parties in connection with or arising out of ...
the formation, implementation, validity, enforceability
and
rectification of the Agreement, shall be referred to and determined
by Arbitration
.”
[7]
Applicant contends that, on a proper reading of clause 13.7 the
parties clearly intended that all disputes regarding the question
whether the agreement was void or merely voidable, should be
determined by the arbitrator. It was further contended in as much
as
it is trite that any agreement which is brought about or occasioned
by misrepresentation or a mistake is either voidable or
void and will
in such event be invalid and unenforceable, any dispute in relation
to any alleged misrepresentation or mistake should
go to
arbitration.
[12]
Counsel for the Respondent argued that owing to the Respondent’s
fundamental mistake, the entire contract between the
parties should
be regarded as void
ab
initio
,
and all of its clauses, including the arbitration clause, must fall
with it. For this proposition reliance was also placed on
North
East Finance
[8]
and
North
West Provincial Government and Another
[9]
supra. Reference
was also made to
Heyman
v Darwins Ltd
[10]
where Viscount Simon LC, stated that:
‘
If the dispute
is as to whether the contract which contains the clause has ever been
entered into at all, that issue cannot go to
arbitration under the
clause, for the party who denies that he has ever entered into the
contract is thereby denying that he has
ever joined in the
submission. Similarly, if one party to the alleged contract is
contending that it is void ab initio...the arbitration
clause cannot
operate, for on this view the clause itself is also void.
[13]
Similarly, it was argued that the comments by the Court in
Wayland
v Everite Group Ltd
[11]
is apposite in this case where the following was held:
‘
It seems to me
to be eminently reasonable that a clause of a contract must stand or
fall with the whole body of the contract and
not be declared
excisable by the parties or that such declaration should have any
validity merely on the ground that the parties
having elected to say
that the clause itself is severable from the contract....
[in
cases where a contract is]
invalid and
unenforceable....then the arbitration clause must in my view stand or
fall with the validity of the main contract, notwithstanding
any
declaration by its signatories.... Nor can it be a matter simply for
interpretation of the arbitration clause itself to determine
whether
it stands or falls with the invalidity or otherwise of the main
contract... If therefore there is some justification for
respondent’s
allegations of invalidity and unenforceability of the contract, then,
the arbitration clause itself being in
doubt and the consequent
jurisdiction of the arbitrator to proceed under it doubtful, a
reference to arbitration would in my view
be an improper reference .’
[14]
Counsel for the Respondent also argued that in the context in which
the offer to purchase was signed between the parties the
current
dispute was not foreseen and or foreseeable and could not have been
in the contemplation of the parties.
[15]
The argument advanced by the Respondent that if a contract is void
from the outset, all clauses including an arbitration clause
will be
void from inception, is in my view misguided.
[16]
The principles regarding the interpretation of contracts are well
settled in our law and it is unnecessary to recite them again.
The
same approach applies in considering the ambit of an arbitration
agreement. A Court must ascertain what the parties intended
by having
regard to the purpose of their agreement, and interpret it
contextually so as to give it a commercially sensible meaning
[12]
.
[17]
With regard to the effect of fraud that induces a contract, Lewis JA,
in North East
[13]
, stated
‘
..[I]n
general, where fraud has been proven, the contract is regarded as
voidable: the aggrieved party may elect whether to abide
by the
contract and claim damages (if it can prove loss) or to resile –
to regard the contract as void from inception and
to demand
restitution of any performance it may have made, tendering return of
the fraudulent party’s performance
’.
[18]
In the present instance, given the disputes of fact regarding the
fundamental mistake the Respondent alleged she labored under
when
signing the offer to purchase, it is not possible nor was this Court
called upon to determine on affidavit, whether the agreement
is in
fact void or voidable.
[19]
The ultimate question for consideration is whether the parties
intended that if a dispute arose, as in this instance, that
dispute
would be determined by an arbitrator, and if so, then he or she
should determine whether the contract is valid and enforceable,
or
voidable or void.
[14]
In fact in North East, the term ‘enforceability’ was
considered to refer to both a void and voidable contract
[15]
.
[20]
The relevant parts of the arbitration clause provides as follows:
“
13.
ARBITRATION
13.1 Any dispute between the
parties in connection with or arising out of:
13.1.2 this Agreement, or
13.1.3 the
interpretation of this Agreement, or
13.1.4 their
respective rights and obligations, or
13.1.5 any actual or purported
termination or repudiation of this Agreement and any matters arising
therefrom, or
13.1.6 the
formation, implementation, validity, enforceability, rectification of
this Agreement, or
13.1.7 the
Agent’s brokerage fee, shall be referred to and be determined
by Arbitration in terms of this clause 13.
13.2
- 13.6….
13.7 The provisions of this clause-
13.7.1 constitute an irrevocable
consent by the parties to any proceedings in terms hereof and no
party shall be entitled to
withdraw therefrom or claim at any
such proceedings that he/she/it is not bound by such provisions.
13.7.2 are
severable from the rest of this Agreement and remain in effect
despite the termination of or invalidity for any reason
of this
Agreement of any part thereof.”
[21]
It needs to be mentioned that in
casu
,
the factual matrix underpinning the dispute between the parties is
distinguishable from the facts in the North West, and North
East
matters supra
[16]
. In
both those matters the fraud relied upon by the aggrieved party
wishing to resile from the arbitration agreement
was either proven or
common cause.
[22]
In
casu
,
at the heart of the Respondent’s complaint is that when
signing the offer to purchase she verily believed –
having been misled to by the misrepresentations of the estate agents
–
that she was buying, and would become the unfettered and
exclusive owner of the rooftop terrace. According to the Respondent,
she
did not know that the Body Corporate owned the terrace and that
she would only have use rights to it with all of the attendant
consequences, namely, that if she wanted to alter the roof terrace
she would need the unanimous consent of all of the members of
the
Body Corporate, a special resolution allowing her to extend her
section and a special resolution to re-create an exclusive
use area
in respect of that part of the terrace which was not incorporated
into her section. According to the Respondent the misrepresentation
resulted in a fundamental mistake on her part which rendered the
entire agreement including the arbitration agreement clause, void
from the outset.
[23]
In considering the arbitration agreement as recorded in clause 13, it
is evident that the parties agreed,
inter
alia
, that “
(A)ny
dispute between the parties in connection with or arising out of ...
the formation, implementation, validity, enforceability
and
rectification of the Agreement, shall be referred to and determined
by Arbitration.”
[24]
Furthermore, clause 13.7 also provides that:
“
13.7 The
provisions of clause:
13.7.1 constitute an
irrevocable consent by the parties to any proceedings in terms hereof
and no party shall be entitled to withdraw
therefrom or claim at any
such proceedings that he/she/it is not bound by such proceedings;
13.7.2 are severable
from the rest of the Agreement and remain in effect despite the
termination of or invalidity for any reason
of this Agreement of any
part thereof.”
[25]
Having regard to the abovementioned and the agreement as a whole, it
is evident the parties envisaged and intended, at the
time of
concluding the agreement, that all their disputes regarding the
Principal agreement whether void or voidable would be determined
by
arbitration. To view it differently would in my view give the
agreement a commercially insensible meaning.
In
fact, clause 13.7.2 makes it clear that ‘despite the
termination
of or invalidity for any reason of this Agreement of any part
thereof’
the arbitration clause will remain in effect. The Arbitration clause
in effect constituted a separate self-standing agreement to
refer
disputes such as the one that features in this matter to arbitration
whatever the ultimate consequence or outcome thereof
might be in
relation to the remainder of the Principal agreement by providing
that the provisions of the clause constitute an irrevocable
agreement
to go to arbitration, from which agreement the parties could not
withdraw. The parties intended to isolate and ring-fence
their
agreement to go to arbitration. Thus, in my view even if the
remaining part of the Principal agreement was to be found void
or
voidable, the parties intended and agreed that this would not affect
the validity and enforceability of the arbitration clause.
In the
circumstances of this case the arbitration clause renders it
distinguishable from the arbitration clause in Wayland
[17]
,
and the clause is immunised from any fatal illness from which the
Principal agreement may suffer, if any.
[26]
For these stated reasons, it follows that the Applicant properly
referred the matter to arbitration as the dispute is arbitrable
in
terms of the agreement.
[27]
It follows that the Application must succeed. In respect of costs, it
was contended by Counsel for the Applicant that the Court
should
consider a punitive costs order against the Respondent in view of the
stance adopted by the Respondent in this matter. Having
regard to the
papers filed of record, I am not persuaded that a costs order should
finally be decided on in the present instance.
I am of the view that
the costs should stand over for determination in the arbitration.
[28]
In the result the following order is made:
The
Application succeeds. The costs of the application stand over for
later determination in the arbitration.
________________
LE GRANGE, J
[1]
2013 (5) SA
1 (SCA)
[2]
North East
supra,
at p5 par.11
[3]
[1942] ALL
ER 337
(HL) at 334; 357 B-D.
[4]
See North
West Provincial Government and Another v Tswaing Consulting CC and
Others
2007 (4) SA 452
(SCA) at para 13.
[5]
Supra para
30.
[6]
North West Provincial Government and Another v Tswaing Consulting CC
and Others,
supra;
and North East Finance (Pty) Ltd v Standard Bank of South Africa
Ltd,
supra
[7]
Clause 13.1.6 of the purchase agreement
[8]
Footnote 1
[9]
Footnote 4
[10]
[1942] 1
All ER 337
(HL) at 343F.
[11]
1993 (3) SA 946
WLD at 951H-952C.
[12]
See
North
East, supra at paras 24 – 25 and the cases referred to
therein.
[13]
Para 14.
[14]
North
East, para 15.
[16]
Footnotes;1
and 4.
[17]
Footnote 11