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[2020] ZAWCHC 37
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Novare Investments (Pty) Ltd and Another v Des Heuyer CC and Others (4286/2020) [2020] ZAWCHC 37 (15 May 2020)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No: 4286/2020
In
the matter between:-
NOVARE
INVESTMENTS (PTY)
LTD
First Applicant
NOVARE
ACTUARIES AND CONSULTANTS
(PTY)
LTD
Second Applicant
and
DES
HEUER
CC
First Respondent
THE
FINANCIAL SECTOR CONDUCT
AUTHORITY
Second Respondent
ADV
C M ELOFF SC N.O.
Third Respondent
CORAM:
Wille, J
DATE
OF HEARING: 4
th
of
May 2020
DATE
OF JUDGMENT: Delivered via email on the 15th of
May 2020
JUDGMENT
WILLE,
J:
INTRODUCTION
[1]
This is an ‘urgent’ application
[1]
to stay certain arbitration proceedings
[2]
,
currently pending between the applicants and the first respondent.
The application is for two declaratory orders, albeit, in the
alternative. Firstly, the relief sought is that the arbitration
agreements entered into between the first respondent and the
applicants
shall cease to have effect in relation to any dispute
arising from these agreements. Secondly, and alternatively, an order
is sought
to the effect that the arbitration agreements shall
cease
to have effect in relation to all disputes in the pending review
[3]
and the action
[4]
proceedings.
[2]
The arbitration proceedings are pending before the third respondent,
as the duly appointed arbitrator. The first respondent
is the
claimant and the applicants are the respondents in this pending
arbitration.
[3]
The first respondent is claiming the payment of monies due by the
applicants in connection with certain investment mandates
and
intermediary agreements.
[5]
The
first respondent was initially registered as a financial service
provider in terms of FAIS
[6]
,
but later, and during 2017, the aforesaid registration lapsed and was
terminated. Once the applicants were made aware of the said
termination, they in turn, resisted making any further payments to
the first respondent, in terms of the agreements.
[4]
The agreements between the parties contained clauses which grant to
the first respondent a contractual right to submit the applicants
to
arbitration in connection with all disputes between them. The
agreements, provide, inter alia, as follows;
‘
Any
dispute arising from this agreement shall be settled by arbitration
between the parties…’
[7]
‘
The
parties record that it is their intention that the arbitration will
be held and completed as soon as possible’
[8]
[5]
In terms of the agreements, the first respondent was contractually
obliged to render, inter alia, the following services to
the
applicants;
‘
The
intermediary undertakes to introduce clients from time to time to
Novare. The purpose of these introductions is to enable Novare
to
make contact with a client who may ultimately conclude a mandate with
Novare’
[9]
[6]
Arbitration proceedings followed
[10]
,
and the arbitrator found, inter alia, that the first respondent was
not required to be registered under FAIS to be entitled to
receive
the agreed payments from the applicants in terms of the agreements
concluded.
[11]
[7]
Aggrieved by these findings, the applicants proceeded to take the
arbitrators decision in connection with the first arbitration
to an
Appeal Tribunal. The applicants’ appeal was ultimately
unsuccessful
[12]
, and they
accordingly made payment to the first respondent strictly in
accordance with the arbitration award. No further payments
were made
to the first respondent going forward, other than those covered up to
the stage of the award in terms of the initial
arbitration
proceedings.
[8]
This prompted the first respondent to pursue a second arbitration
against the applicants in order to attempt to secure the further
payments due to the first respondent under the agreements with the
applicants. The applicants opposed the claims asserted by the
first
respondent on the same grounds as before
[13]
and thereafter instituted action proceedings against the first
respondent, in which, inter alia, they sought a number of further
wide-ranging declaratory orders against the first respondent.
[9]
In the action proceedings,
the
applicants seek, inter alia, relief to the effect that, upon a
correct interpretation and application of sections 7(1) and
7(3) of
FAIS, the first respondent stands prohibited in law from claiming the
payments it is seeking, unless and until, the first
respondent is
licensed under FAIS. The main point is that, in the event that a
court ultimately grants to the applicants the relief
they seek in the
action proceedings, then in that event, the second arbitration will
be rendered nugatory. Needless to say, the
first respondent is not
prepared to stay the arbitration proceedings, pending the outcome of
the action proceedings.
THE
APPLICANTS’ CASE
[10]
The applicants are licensed as FSP’s in terms of FAIS for the
provision, inter alia, of financial products, financial
advice and
financial services. It is contended that section 7(3) of FAIS
prohibits the applicants from conducting any -
financial services
related business -
with any person rendering financial services
unless that person also holds the appropriate license under FAIS.
This is the ‘legality’
issue.
[11]
The first respondent was a licensed FSP until the 16
th
of May 2017 and, thereafter its license lapsed and was terminated. It
is the applicants’ case that since the termination
of the
license, first respondent was prohibited from rendering financial
advisory services or intermediary services and accordingly,
could not
act as a representative for the applicants. The applicants
accordingly ceased making payments to the first respondent
under the
agreements between them. The applicants also argue that a
regular
feature
of
the first respondent’s business is that they furnished advice
to clients, rendered intermediary services to clients and
performed
introductions on behalf of clients and were product suppliers.
[14]
[12]
At the commencement of the pre-arbitration process in connection with
the second arbitration, the applicants’ asserted
their rights
to seek relief from the court in terms of section 3(2)(c) of the
Act
[15]
. In addition, the
applicants’ sought other procedural relief from the arbitrator,
but were largely unsuccessful in these
endeavours.
THE FIRST
RESPONDENT’S CASE
[13]
The first respondent takes the position that as matters currently
stand, the legality issue raised by the applicants is
res
iudicata
, or at least, a matter of
issue estoppel
.
Further, that it is both legal and permissible for the first
respondent to receive all payments that are due and that the
applicants
are obliged to make payment to the first respondent in
terms of the agreements.
[14]
It is submitted that the findings made in the first arbitration
together with the findings made by the Appeal Tribunal
[16]
,
are final and definitive as between the applicants and the first
respondent as far as the payment under the agreements is
concerned.
[17]
The first
respondent fortifies this argument by asserting that the monies that
were due by the applicants to the first respondent,
were paid into an
attorney’s trust account to be retained therein as a
stakeholder. As soon as the first respondent was successful
in the
first arbitration, these monies held in trust, fell to be paid over
to the first respondent and there is accordingly no
reason whatsoever
why the applicants should refuse to continue to make payment to the
first respondent under the various agreements,
THE
POSITION OF THE SECOND AND THE THIRD RESPONDENT
[15]
The second respondent is an uninterested party in that it has not
actively supported the view adopted by the applicants’
compliance officer to the effect that any payments to the first
respondent remain impermissible whilst the latter does not hold
a
licence under FAIS.
[16]
The third respondent takes no active role in these proceedings, as
the first respondent advances that the legality argument
has been
squarely raised as an issue in the second arbitration. Further, if
the applicants are successful on this point it will
be the end of the
first respondent’s claims against the applicants.
DISCUSSION
[17]
It is trite that a court should not enforce an arbitration award for
payment that would contravene a statutory prohibition
against that
payment.
[18]
Further, in terms
of the common law, the court is enjoined to act to prevent an
arbitration that will give rise to an unenforceable
award.
[19]
[18]
In the
Airports
matter
[20]
,
the
court emphasized the following when
considering
an application to stay court review proceedings in favour of an
arbitration, namely:
‘
It
makes little, if any, sense to stay the Rule 53 application in order
to allow the parties to have the same issue decided at arbitration,
only to find that the outcome of the arbitration is susceptible to
being declared a nullity’
[19]
This application is however entirely different, as same has been
squarely brought under section 3(2)(c) of the Act. The applicants
harbour a belief that if it implements the agreements and makes
payment to the first respondent, these actions would constitute
a
contravention of section 7(3) of FAIS, by the applicants and, would
also be a contravention of section 7(1) of FAIS, by the first
respondent. Further, should the arbitrator find against the
applicants and order them to pay the first respondent in terms of the
agreements, these findings and any award made as a consequence
thereof, would not be enforceable of the basis of an illegality,
alternatively, be contrary to public policy.
[20]
The first respondent contends that the arguments advanced on behalf
of the applicants do not fall under the rubric of section
3(2)(c) of
the Act. This section provides that a court may on good cause shown;
‘
order
that the arbitration agreement shall cease to have any effect with
reference to any dispute referred’
[21]
It cannot be disputed that the court has no common law power to
refuse to enforce an arbitration agreement. This is so because,
whatever the true disputes between the parties to an arbitration may
be, they are bound by the clauses submitting the disputes
to
arbitration.
[21]
The power of
the court in this connection is triggered by a party to an
arbitration agreement exhibiting good cause for the relief
to be
granted. The good cause contended for by the applicants is founded
largely on the grounds that they have instituted an action
against
the first respondent for essentially the same relief and for even
wider and more far reaching relief. This, after the second
arbitration had commenced.
[22]
It is in this context that the court is called upon to examine
whether good cause exists and accordingly to exercise its discretion
to determine if the agreement to arbitrate, as between the parties,
falls to be set aside or not to be enforced. In my view, in
the
circumstances of this case, the
legality
issue
,
is an issue upon which, inter alia, the parties agreed to arbitrate.
This must be so, because it is clear that the parties intended
to
have all their disputes under the agreements to be determined by
arbitration. If the parties intended otherwise, it would have
been
easy enough for them to have done so.
[22]
[23]
The applicants rely, inter alia, on
Intercontinental
[23]
as authority that the pending arbitration proceedings would result in
an illegality. Again, in my view, this case is distinguishable
as
this matter involved an application for an order preventing allegedly
futile proceedings, before they commenced. In contrast
to this, in
the current matter, the arbitrator in the first arbitration and the
arbitrators in the Appeal Tribunal held in favour
of the first
respondent on the core issue of legality.
[24]
The first respondent argues that there is no authority for a court to
stay or terminate arbitral proceedings in terms of section
3(2)(c) of
the Act, in circumstances where the claimant, in arbitration
proceedings, exercises its contractual right to arbitrate
and the
respondent, thereafter institutes parallel proceedings, by way of an
action. The authorities relied upon by the applicants
in support of
good cause in connection with this issue, clearly make reference to
cases where the party seeking a stay, is the
very same party that
issued out the parallel action proceedings. The matter before me is
entirely different.
[25]
The onus or burden of demonstrating good cause, in these
circumstances, is at a high threshold and the provisions of section
3(2)(c), therefore logically fall to be interpreted narrowly as the
applicants are attempting to avoid their contractual obligations
to
arbitrate.
[24]
Further, it
seems to me that the orders sought by the applicants are not so much
connected to any specific dispute that was referred
to arbitration.
Rather, the orders sought by the applicants, seem to identify matters
and issues in
other
proceedings
,
upon which they seek to rely on to prevent the arbitration from
proceeding. These proceedings, are the action proceedings, having
been issued out by the applicants, after the first respondent had
commenced the second arbitration.
[26]
This in my view cannot constitute good cause in these circumstances
as this could never have been the intention of the legislature
when
it enacted the provisions as set out in section 3(2)(c) of the Act.
If it were so, applications under section 3(2)(c) of the
Act, would
readily be open to abuse by any party seeking to avoid an arbitration
on flimsy grounds.
[27]
Further, convenience
[25]
dictates that the arbitral process should continue as the applicants
stand to suffer no prejudice should the third respondent find
in
favour of the first respondent on the legality issue. This is so
because, if at the end of the day, the applicants were to be
successful in their legality argument, the court then seized with the
matter
[26]
, will not enforce
the award in terms of the Act.
[28]
The findings in the
ACSA
[27]
matter are most helpful in this connection. This matter essentially
involved a
legality
review. In this matter, the applicants are in essence seeking an
interdict to avoid, what they believe, would amount to an illegality.
Accordingly, in my view, the applicants bear the burden of showing,
at the very least, a
reasonable
possibility
of the alleged illegality contended for, by them. I say this because,
the applicants must show, on a balance of probabilities,
that the
findings sought be made by the third respondent have a
reasonable
possibility
of being rendered illegal, unenforceable or contrary to public
policy. This after all, must constitute part of their good cause
argument and must be one of the weighty factors that I must take into
account, when exercising my judicial discretion.
[29]
A further useful authority is
Tristar
[28]
.
In this matter, the court had to deal with the issue of what
constituted -
intermediary services
- in a matter not dissimilar from the facts in the current matter. On
this score, it was held, inter alia, as follows;
‘
In my view none of those constitutes
‘intermediary services’ on the ordinary meaning of the
language of the definition.
I can also see no reason – and none
could be suggested – why the legislature would have thought it
necessary for services
of that kind to be regulated. In those
circumstances TriStar was not required to be licensed to provide
them, and the objection
raised by the Fund ought to have been
dismissed
’
[30]
Accordingly, I am far from persuaded that a case for
good cause
has been made out by the applicants. In addition, the third
respondent may rule in favour of the applicants on the legality
issue,
in the second arbitration.
[31]
In my view, the institution of the action proceedings by the
applicants, after the second arbitration had commenced, cannot
come
to their assistance so as to avoid their obligations as set out in
the arbitration agreements. The applicants, under these
circumstances, are bound by the arbitral process as set out in these
agreements.
COSTS
[32]
The applicants complain that the first respondent adopted an
unreasonable attitude in connection with the proposed further
conduct
of the matter which was set down for hearing on the 20
th
of March 2020. An analysis of the correspondence between the parties
indeed exhibits that the first respondent
could and should have
adopted a more conciliatory and co-operative approach in connection
with the order that was destined to be granted on the 20
th
March 2020, as a racing certainty. I agree with the applicants’
complaints on this limited issue.
ORDER
[33]
In the result the following order is granted, namely;
1.
That the application is
dismissed.
2.
That the costs of and
incidental to this application including costs of two counsel, shall
be paid by the applicants (jointly and
severally, the one paying the
other to be absolved), on the scale as between party and party, as
taxed, or agreed.
3.
That the wasted costs of
and incidental to the proceedings on the 20
th
of March 2020 (including costs of senior counsel, if applicable),
shall be paid by the first respondent on the scale as between
party
and party, as taxed, or agreed.
__________
WILLE,
J
[1]
Held via the
‘Zoom’ platform for video and audio conferencing
[2]
The
second arbitration
[3]
The first
respondent reviewed the - causation findings - made by the appeal
tribunal
[4]
The
applicants issued out an action after the commencement of the second
arbitration
[5]
The
agreements
[6]
Financial
Advisory and Intermediary Services Act, 37 of 2002
[7]
Paragraph 9
of the agreement.
[8]
Paragraph
9.1.5 of the agreement
[9]
Paragraph
2.1.2 of the agreement
[10]
The
first arbitration
[11]
The
‘legality issue’
[12]
The
applicants were successful in disputing certain mandates, the
‘causation issue’
[13]
The
issue of the non-registration under FAIS
[14]
All
these services as ‘defined’ in FAIS
[15]
The
Arbitration Act of 1965
[16]
In
connection with the ‘legality issue’ as opposed to the
‘causation issue’
[17]
This,
aside from the ‘causation issue’ in connection with
certain mandates
[18]
Hubbard v
Cool Ideas 1186 (580/12)
[2013] ZASCA 71
(28 May 2013)
[19]
Intercontinental
Finance and Leasing Corporation v Stands 56 and 57 Industrial (1979
(3) SA 740 (W)
[20]
Airports
Company South Africa v ISO Leisure OR Tambo 2011 (4) SA 642 (GSJ)
[21]
Silpert v
Seymour
1932 TPD 329
at page 334
[22]
Fiona
Trust and Holding Corporation and Others v Privalov and Others
[2007] 1 ALL ER (Comm) 891
[23]
Intercontinental
Finance and Leasing Corporation v Stands 56 and 57 Industrial (1979
(3) SA 740 (W)
[24]
Universiteit
van Stellenbosch v J A Louw (Edms) Bpk
1983 (4) SA 321
(A) p 329 H
[25]
Although
‘balance of convenience’ is not a factor as final relief
is being sought
[26]
To
have the award made an order of court
[27]
Airports
Company South Africa v Tswelokgotso Trading Enterprises CC
2019 (1)
SA 204
[28]
Tristar
Investments v The Chemical Industries National Provident Fund
[2013]
ZASCA 59
(16 May 2013)