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[2021] ZAWCHC 232
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Du Toit and Another v Du Toit and Another (6476/2021) [2021] ZAWCHC 232 (16 November 2021)
Republic of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
WESTERN
CAPE DIVISION, CAPE TOWN
Case number: 6476/2021
Before: The Hon. Mr Justice Binns-Ward
Hearing:
9 November 2021
Judgment: 16 November 2021
In the
matter between:
ANDRIES
STEPHANUS DU
TOIT
First Applicant
LIGHTTREE
INFORMATION SYSTEMS
TECHNOLOGIES
(PTY)
LTD
Second
Applicant
and
ARINA
DU TOIT N.O.
First
Respondent
MARC
DOTAN
Second Respondent
JUDGMENT
Delivered by email to the parties and release to SAFLII.
BINNS-WARD
J:
[1]
The applicants were the first and second
defendants respectively in arbitration proceedings before the first
respondent in a claim
instituted against them by the second
respondent. The factual background to the dispute referred to
arbitration was an arrangement
entered into between the second
respondent (Dotan) and the first applicant (Du Toit) for the second
applicant (Lighttree) to tender
to provide fibre network operator
services to the Body Corporate of the Villa Italia sectional title
scheme at Century City.
Dotan was a member of the board of
trustees of the Body Corporate at the time. He deliberately
chose not to disclose his
interest in the contemplated fibre network
services contract to the Body Corporate. Lighttree is a
company, of which Du Toit
at all material times has been the sole
director and shareholder. Dotan and Du Toit decided to use
Lighttree as the tenderer
to conceal Dotan’s undisclosed
conflict of interest in respect of the awarding of the contract.
The understanding between
Du Toit and Dotan was that if the second
applicant’s tender were successful, Dotan would be paid an
amount calculated to
correspond to the profit on the installation by
Lighttree of the fibre network to Villa Italia as a reward for
introducing ‘the
business opportunity’, and he and Du
Toit would thereafter share in the profits generated by Lighttree’s
service agreement
with the Body Corporate in respect of the ongoing
operation and maintenance of the network.
[2]
Dotan’s aforesaid conduct was in
breach of his fiduciary relationship to the Villa Italia Body
Corporate. His actions
were in contravention of his obligations
in terms of s 8(2) of the Sectional Titles Schemes Management
Act 8 of 2011, and
in the result rendered him liable, in terms of
s 8(3) of that Act, to compensate the Body Corporate for any
loss it may have
suffered because of his misconduct, and, in any
event, to account to it for any economic benefit received by him by
reason thereof.
[3]
It transpired that the Body Corporate
accepted Lighttree’s tender, and the aforementioned
understanding between Dotan and
Du Toit was consequently
implemented. Dotan was paid R800 000 for introducing the
‘business opportunity’
to the enterprise to be conducted
using Lighttree. Dotan nominated two corporate entities,
Compcons CC and Ultrafast (Pty)
Ltd, to receive the payment on his
behalf.
[4]
The service contract between Lighttree and
the Body Corporate, which was for a fixed term, was renewed for an
additional period
of one year after its initial expiry. The
Body Corporate thereafter put the service contract out to tender
again. Dotan
was by that stage no longer a trustee of the Body
Corporate. Lighttree submitted a tender for the new contract in
December 2019.
[5]
Du Toit understood, and Dotan allowed him
to believe, that the submission of the tender was being done on the
basis that if Lighttree
were awarded the contract the business would
continue to be conducted for the common advantage of himself and
Dotan, as originally
arranged. Unbeknownst to Du Toit, however,
Dotan submitted a competing tender for the contract using one of his
own companies,
the aforementioned Ultrafast (Pty) Ltd.
[6]
When Du Toit came by chance to learn of the
competing tender, Dotan claimed that he had caused it to be submitted
as a ‘hedging’
strategy. Upon its discovery,
however, he withdrew it, and on 9 April 2020 the contract was again
awarded to Lighttree.
The new contract was referred to in the
arbitration as ‘the renewed Villa Italia business’.
Du Toit regarded
Dotan’s conduct concerning the competing
tender as a material breach of their arrangement and terminated the
agreement.
Dotan did not accept that the contract had been
validly terminated and instituted the arbitration claim.
[7]
The relief sought in terms of Dotan’s
statement of claim was formulated as follows:
a)
[That it be declared] that the agreement
concluded between the claimant and the first and/or second defendants
in respect of the
Villa Italia business is a partnership and/ or
joint venture;
b)
[That it be declared] that the renewed
Villa Italia business is an asset of the partnership;
c)
That the defendants be ordered to comply
with the terms of the partnership agreement, and in particular:
a.
[That they] must account to the Claimant
monthly for the income and expenses of the renewed Villa Italia
business; and
b.
[That they] must make payment to the
Claimant monthly of an equal half share of the profits of the renewed
Villa Italia business
d)
That the defendants be ordered to pay the
costs of the arbitration, including the costs of the arbitrator and
the costs of counsel.
[8]
The allegations pleaded in the statement of
claim in support of the relief sought in prayer (c) of the
statement of claim asserted
unambiguously that Dotan was seeking
specific performance of the alleged partnership agreement. They
made it clear that he
rejected any idea that the agreement with Du
Toit had been effectively terminated, hence his reference in the
statement to Du Toit
and/or Lighttree having ‘
purported
to terminate the partnership agreement
’.
Dotan characterised the ‘purported termination’ of the
agreement as a repudiation or material breach
thereof and pleaded
that he had nonetheless elected to hold the defendants to the
contract.
[9]
The first respondent held in her reasoned
award that the arrangement between Dotan and Du Toit constituted a
partnership agreement
between Dotan and Lighttree (not Du Toit).
The arbitrator also upheld Du Toit and Lighttree’s pleaded
contention that
the partnership agreement (if such it was) had been
cancelled as a result of Dotan’s material breach thereof.
It was
common cause in the proceedings before this court that the
cancellation occurred on 12 April 2020.
[10]
The relief granted to Dotan was formulated
as follows in paragraph 66 of the arbitrator’s award:
1.
It is declared that the agreement concluded
between Mr Dotan and Lighttree in respect of the Villa Italia
business is a partnership;
2.
It is declared that the renewed Villa
Italia business, entered into on 9 April 2020, is an asset of the
partnership;
3.
Lighttree is ordered to:
3.1
Account to Mr Dotan monthly for the income
and expenses of the renewed Villa Italia business, entered into on 9
April 2020;
3.2
Pay to Mr Dotan monthly an equal half share
of the net profits of the renewed Villa Italia business, entered into
on 9 April 2020;
4.
The claim against Mr Du Toit is dismissed;
5.
Mr Dotan is to pay Mr Du Toit’s costs
of the arbitration, as taxed or agreed on the High Court scale,
including the costs
of the arbitration venue, the recording and
transcription of the proceedings, and the costs of the arbitrator;
6.
Lighttree is to pay Mr Dotan’s costs
of the arbitration, as taxed or agreed on the High Court scale,
including the costs of
the arbitration venue, the recording and
transcription of the proceedings, and the costs of the arbitrator.
[11]
It is accordingly plain that,
notwithstanding the arbitrator’s finding that the partnership
agreement had been terminated,
the award directs Lightree to render
specific performance of it. It was common ground between
counsel before me that that
provision of the award was patently
erroneous and legally unsustainable.
[12]
Du Toit and Lighttree have applied in the
current proceedings, in terms of
s 33
of the
Arbitration Act 42
of 1965
, for an order setting the award aside.
Section 33(1)
provides that the court may on application by any party to the
reference set aside an arbitral award 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 (c) an award has been improperly obtained.
It is well established that the courts construe
s 33
of the
Arbitration Act restrictively
so as to hold true to judicial policy
that marked deference to party autonomy should be shown when
litigants have agreed to the
adjudication of their disputes by
arbitration rather than through the courts; cf. e.g.
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007
(3) SA 266
(SCA) and
Lufuno Mphaphuli &
Associates (Pty) Ltd v Andrews and Another
2009 (4) SA 529
(CC),
2009 (6) BCLR 527
, at para 224-236.
[13]
Du Toit and Lighttree allege that the
arbitrator committed a gross irregularity in the conduct of the
arbitration and exceeded her
powers in making the award. As to
the first of the aforementioned grounds, it was alleged that
the first respondent
had made an award outside the scope of the
relief prayed for in the pleadings. A further ground of
complaint was that the
relief granted was ‘
irreconcilable
with the factual and legal conclusions she made in her award
’
and ‘
ultimately incompetent
’.
It was consequently contended that the arbitrator had ‘
failed
to properly perform her mandate ... in accordance with the terms of
reference of the arbitration
’.
The essence of the applicants’ dissatisfaction with the
arbitrator’s award was their complaint that it
acceded to
Dotan’s claim for specific performance of the contract,
notwithstanding the arbitrator’s finding in her
reasons for the
award that the partnership had been terminated consequent upon the
cancellation of the agreement by Du Toit or
Lighttree by reason of
Dotan’s material breach of the contract.
[14]
I am not persuaded that the arbitrator went
outside the pleadings in her determination of the dispute referred to
arbitration.
She was, however, in obvious error to have ordered
specific performance of a cancelled contract, which is the effect of
the formulation
of the award. In fairness to her, I doubt that
is what she intended. It seems to me probable that the
arbitrator had
in mind that the executory contract between Lighttree
and the Villa Italia Body Corporate was, until such time as the
partnership
was liquidated, something in respect of which the
partners remained accountable to each other notwithstanding the
termination of
the partnership agreement. If I am right, it is
unfortunate that the wording of paragraph 66.3 of the award did
not
articulate that and gave rise instead to an in part
self-contradictory and legally nonsensical award.
[15]
It is well-established that a factual or
legal error by an arbitrator does not, of itself, constitute
misconduct or a gross irregularity.
I am unwilling in the
circumstances, having regard to the principles discussed in the
authorities cited earlier, to set the award
aside in terms of
s 33
of the
Arbitration Act. In
the peculiar circumstances of the
current case the possibility of any resultant injustice to Du Toit
and Lighttree will be avoided
by virtue of the treatment of Dotan’s
counter-application, to which I now turn.
[16]
In the counter-application, Dotan seeks
(i) an order in terms of
s 31
of the
Arbitration Act making
the arbitrator’s award an order of court, (ii) the
appointment of a liquidator to wind up the partnership and (iii) an
order directing a statement and debatement of account in respect of
the renewed Villa Italia business. By the time the matter
came
to hearing, as indicated during argument by their counsel, Ms
McChesney,
Du
Toit and Lighttree did not object to the terms of the award (with the
exclusion of paragraph 66.3) being made an order of court.
They
also had no objection to the appointment of Mr Thomas van Zyl as
liquidator to wind up the partnership, on the basis
that the latter’s
fees and disbursements would be expenses in the partnership.
Mr
Whitaker
,
who appeared for Dotan, for his part sensibly accepted that in the
context of the appointment of a liquidator it would not be
appropriate to order a court-directed statement and debatement of the
partnership accounts. The combined effect of making
most of the
arbitral award an order of court and appointing a liquidator to wind
up the partnership is that the erstwhile partners
will be required to
account to the liquidator to enable him to discharge his function and
that the contract with Villa Italia will
be treated by all concerned
as an asset of the partnership in the liquidation account.
[17]
I do not intend to make an elaborate order
concerning the liquidator’s powers and duties. He must
obviously do what
is necessary, which ordinarily entails realising
the partnership’s assets, collecting the debts due to it,
settling its liabilities,
and preparing and giving effect to a final
account between the partners. As Macauley J observed in
Brighton v Clift
(2)
1971 (2) SA 191
(R),
[1971] 2 All SA 417
, at 193 (SA), ‘
it
is not
[the]
Court’s
function to act as a liquidator and anticipate problems which may
present themselves to the liquidator at a later
stage.
Doubtless, these will arise in any liquidation, but they are matters
for the liquidator to decide and, in doing so,
he may seek the
parties’ concurrence in any course he takes. Failing
their agreement, his decisions are open to objection
by either party
with recourse to the Courts
’.
In the current matter it is eminently foreseeable that a special
approach will need to be taken with regard to the
disposal of the
renewed Villa Italia business; cf. LAWSA vol 19 (Second Edition
Replacement) s.v.
Partnership
at para 322, with reference to
Robson v
Theron
1978 (1) SA 841
(A),
[1978] 2
All SA 264
(A) at 858 (SA), but that is an issue for the future.
[18]
Mr
Whitaker
also accepted, advisedly in my judgment, that the principle that a
court seized of an application in terms of
s 31(1)
of the
Arbitration Act will
not decline to make an award an order merely
because it disagrees with the award or is of the view that the
arbitrator erred on
the facts or a point of law does not imply that a
court will nevertheless integrate an award that is patently flawed -
in this
case, legally nonsensical and self-contradictory – into
an order of court. It was for that reason that he too accepted
that paragraph 66.3 of the award should be excised from the
provisions to be made exigible by an order in terms of s 31(1)
of the Act.
[19]
A further practical effect of the
formulation of the relief which both sides were ultimately prepared
to accept in the application
and counter-application is that it has
become unnecessary to remit any part of the subject matter of the
award for reconsideration
by the first respondent or an alternative
tribunal consequent upon this court declining to make paragraph 66.3
of the award an
order of court.
[20]
Both sides obtained some success in the
proceedings. Mr
Whitfield
argued that as Dotan was substantially successful in resisting the
application by Du Toit and Lighttree for relief in terms of
s 33
and the greater part of the award will be made an order of court
pursuant to his counter-application in terms of s 31(1),
Dotan
should be awarded his costs. Whilst in other circumstances I
might have found some merit in that argument, the unethical
conduct
that characterised the inception of the partnership and later brought
about its termination has led to me to conclude that
it would be just
for the parties to be left to bear their own costs. The refusal
of the application in terms of s 33
was, moreover, to some
extent influenced by the consideration that in the peculiar
circumstances the injustice that might have
followed upon the award
of a direction for specific performance could be addressed by
excising that part of it from the terms of
the award to be made an
order in terms of s 31(1). Accordingly, to some extent the
application and the counter-application
played off against each
other. I shall therefore make no order as to costs.
[21]
An order will issue in the following terms:
1.
Save for subparagraph 3 thereof, paragraph
66 of the award dated 5 March 2021 made by the first respondent (the
arbitrator) is hereby
made an order of court in terms of
section 31(1)
of the
Arbitration Act 42 of
1965.
2.
Mr Thomas van Zyl is hereby appointed as
liquidator for the purpose of winding up the partnership declared by
the arbitrator to
have existed between Marc Dotan and Lighttree
Information Systems Technologies (Pty) Ltd (Lighttree), which was
terminated on 12
April 2020.
3.
The liquidator shall have all the powers
necessary to discharge his function of winding up the partnership,
including, but without
derogation from the generality of the
aforegoing, the power to require a substantiated accounting from
either or both of the partners
and to determine the present value as
at the date of the termination of the partnership of the renewed
Villa Italia business.
4.
To the extent inconsistent with the terms
of paragraphs 1 - 3 above, the relief sought in the application and
the counter-application
is refused.
5.
There shall be no order as to costs.
A.G. BINNS-WARD
Judge
of the High Court
APPEARANCES
Applicants’
counsel:
M.A. McChesney
Applicants’
attorneys:
Potgieter and Associates
Bellville
FA Hanekom Attorneys
Cape Town
Second
respondent’s counsel:
Joseph Whitaker
Second
respondent’s attorneys:
Hofmeyr and Haude Inc
Kenilworth, Cape Town