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[2014] ZAGPJHC 102
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Fattouche v Khumalo (508/2012) [2014] ZAGPJHC 102 (6 May 2014)
REPUBLIC OF SOUTH
AFRICA
SOUTH GAUTENG
HIGH COURT JOHANNESBURG
CASE
NO: 508/2012
DATE:
06 MAY 2014
In the matter
between:
PIERRE
FATTOUCHE
.........................................................
Applicant
And
MZILIKAZI
KHUMALO
................................................
Respondent
J U
D G M E N T
WEINER J:
Background
[1] On 1 May 2006,
the Applicant, the Respondent and an entity named Rosario
International Investments Limited (“Rosario”)
entered
into a written sale of shares agreement.
[2] On 21 April
2008, the applicant and the Respondent entered into an agreement to
refer certain disputes that had arisen between
the parties from the
sale of shares agreement to arbitration.
[3] The parties
settled the disputes at the arbitration. On 12 March 2009, the
arbitrator issued an award in Paris, France, based
on the settlement
agreement.
[4] In terms of the
settlement agreement, the Respondent was obliged to pay the Applicant
the sum of US$5 million as follows:
4.1. US$1 250 000.00
on 16 April 2009;
4.2. US$1 250 000.00
on 16 May 2009;
4.3. US$1 250 000.00
on 16 July 2009; and
4.4. US$1 250 000.00
on 16 September 2009.
[5] The Respondent
did not make payment to the Applicant of any of the amounts due in
terms of the award.
[6] In compliance
with the Recognition and Enforcement of Foreign Arbitral Awards Act
No 40 of 1977 (“Recognition and Enforcement
Act”), the
Applicant obtained a certified copy of the original arbitral
agreement and a certified copy of the foreign arbitral
award and
applied to have the award made an order of this court.
[7] The arbitral
award is expressed in United States Dollars. The Applicant has
established by way of affidavit evidence that the
exchange rate
prevailing at the date of the arbitral award was US$1.00 =
ZAR10.1863.
[8] The Respondent
opposed the application but failed to file an answering affidavit in
spite of his undertaking to do so by 9 March
2012, which undertaking
was made an order of court on 28 February 2012.
[9] The matter was
set down for hearing on 22 October 2012 when it was again postponed
as the Respondent launched an application
for security for costs on
the same day. The Respondent had still not filed an answering
affidavit by that stage.
[10] The application
was again set down for hearing on 11 June 2013. On that occasion the
application was postponed to 23 July
2013, and the court ordered the
respondent to file his answering affidavit in the application by 25
June 2013.
[11] At the hearing
on 23 July 2013, the court ordered the Applicant to furnish security
for costs in an amount to be fixed by the
Registrar. This was
subsequently furnished and is no longer an issue.
[12] The parties
were also required by the presiding judge to deal with the
implications of the Protection of Businesses Act 99
of 1978 (“The
Protection of Businesses Act”) on the relief sought. They have
done so.
[13] The defence
raised by the Respondent in his answering affidavit is an alleged
pactum de non petendo. The Respondent alleges
therein that he entered
into an oral agreement with the applicant during 2009 that the
Applicant would not proceed to litigation
or to any execution in
terms of the award until such time that the Applicant had obtained
two mining licences in Armenia.
The Relief sought by
the Applicant
[14] The Applicant
seeks an order recognising and enforcing the foreign arbitral award.
[15] There are two
Acts that govern the enforcement of foreign arbitral awards:
1. The Recognition
and Enforcement Act and
2. The Protection of
Businesses Act.
[16] The Respondent
does not raise an issue in relation to the Recognition and
Enforcement Act.
[17] In Jones v Krok
[1994] ZASCA 177
;
1995 (1) SA 677
(A) the court dealt with an application for
provisional sentence based on a foreign court judgment. Although the
present matter
concerns an application rather than provisional
sentence, the following basic principles stated therein are
applicable:
"The present
position in South African law is that a foreign judgment is not
directly enforceable, but constitutes a cause
of action and will be
enforced by South African courts provided (i)…(vi) that
enforcement of the judgment is not precluded
by the provisions of the
Protection of Businesses Act, 99 of 1978, as amended. Apart from the
aforegoing, South African Courts
will not go into the merits of the
case adjudicated upon by the foreign court and will not attempt to
review or set aside its findings
of fact and law”.
[18] Section 1(1) of
the Protection of Businesses Act prohibits the enforcement of certain
foreign arbitration awards. The provision
states as follows:
“Notwithstanding
anything to the contrary contained in any law or other legal rule,
and except with the permission of the
Minister of Economic Affairs -
(a) No… arbitration award… in connection with any civil
proceedings and arising from
any act or transaction contemplated in
ss (3), shall be enforced in the Republic ..."
Section 1(3) thereof
provides that:
"ln the
application of ss (1)(a) an act or transaction shall be an act or
transaction which took place at any time whether
before or after the
commencement of this Act, and is connected with the mining,
production, importation, exportation, refinement,
possession, use or
sale of or ownership to (sic) any matter or material of whatever
nature whether within, outside, into or from
the Republic.”
[19] The principles
referred to in Jones v Krok (supra) are mutatis mutandis applicable
to the enforcement of foreign arbitral awards,
subject to the
additional need for an applicant relying thereon to comply with the
Recognition and Enforcement Act.
The Protection of
Businesses Act – factual scenario
[20] It is common
cause that the foreign arbitral award that the Applicant seeks to
enforce is in connection with civil proceedings
arising from a
transaction. A key question before this court however is whether the
transaction falls within the ambit of Section
1 of the Protection of
Businesses Act.
[21] Section 1(3) of
the Businesses Act which, with a cross-reference to section 1(1),
requires Ministerial consent for "any
act or transaction
connected with the mining, production, importation, exportation,
refinement, possession, use or sale of or ownership
(sic) to any
matter or material, of whatever nature, whether within, outside, into
or from the Republic". (emphasis added).
[22] The words
"connected with" in section 1(3) are open to a very wide
interpretation. Courts have held that the application
of this section
is considerably narrowed by the proper interpretation of the words
“matter or material”. A restrictive
interpretation has
accordingly been adopted.
[23] In Tradex Ocean
Transportation SA v MV Silvergate (Astyanax) and Others
1994 (4) SA
119
(D), Section 1(3) of the Businesses Act was raised as a defence
to a Greek judgment and London arbitration awards relating to the
charter of a ship. After analysing the dictionary definitions of
"matter" and "material', Howard JP concluded that
‘matter or material’ was limited to ‘raw materials
or substances from which physical things are made and not
manufactured things’. At 20J – 121C:-
"the
dictionary definitions indicate clearly enough that 'matter or
'material' in this context means raw materials or substances
from
which physical things are made and not a manufactured thing such as a
ship. The reference in s 1(3) to the mining, production,
importation, exportation and refinement of 'matter or material' (with
no reference to manufacture) is a further pointer to the
meaning
which that expression is intended to bear: cognoscitur a sociis. I
do not think that the words 'of whatever nature' justify
an extension
of the ordinary meaning of 'matter and material'. If that expression
ordinarily denotes raw materials or substances,
the words 'of
whatever nature' merely indicate that it embraces everything within
that category. I therefore conclude that the
ship which features in
this case is not `matter or material' within the meaning of that
expression as used in s 1(3) of the Act.
It follows that the foreign
judgment and awards which the plaintiff seeks to enforce do not arise
from any act or transaction
contemplated in s 1(3) and that the plea
in bar does not disclose a defence."
[24] In Chinatex
Oriental Trading Co v Erskine
1998 (4) SA 1087
(C), Chetty J stated
at 1095I – 1096C:-
"Howard JP in
Tradex ... found that the expression 'any matter or material' means
'raw materials or substances' for two reasons:
(i) it was supported
by the dictionary definition of the word 'matter' and 'material' and
(ii) the Legislature pertinently in s
1(3) referred to a transaction
connected with the mining, production, importation, exportation and
refinement of any matter or
material but did not refer to
manufacture. In my view the above reasoning is convincing and the
matter correctly decided. The
wording of the section evidences a
clear indication that the Legislature intended to refer to raw
materials or substances and not
manufactured goods such as garments.
Consequently the plaintiff is not precluded by the provisions of the
Protection of Businesses
Act ... from seeking to enforce the judgment
of the English court."
[25] The restrictive
approach was subsequently approved in Richman v Ben-Tovim
2007 (2) SA
283
(SCA), which held that the Act was not applicable to a claim for
money due for professional services. In consideration of Section
1(3) of the Act, Zulman J held at 11:-
"The wording of
the section refers to transactions connected with raw materials or
substances. Even manufactured goods are
excluded from the operation
of the Act. The plaintiff's claim is for services and disbursements
related to negotiations, advice,
drafting of contract documents and
incidental matters pertaining to a restructuring, re-arrangement (and
ultimately) dissolution
of joint ventures between the respondent, on
the one hand, and various affiliates of the De Beers group of
companies. If manufactured
goods are sufficiently remote from
‘matter’ and `material' within the meaning of the Act by
parity of reasoning there
can be no scope for applying it to a claim
for payment sounding in money where the claim is one for professional
services rendered.
I accordingly consider that this defence is
without merit." (emphasis added).
[26] In its
interpretation of the agreement, in light of the Sections referred to
above, the Respondent contends that the foreign
arbitral award that
the Applicant seeks to enforce is in connection with civil
proceedings arising from a transaction in connection
with mining of
raw materials. Further he argues that it is clear that the act or
transaction is connected with mining, production,
importation,
exportation, refinement, possession, use or sale of or ownership to
(sic) any matter or material as contemplated in
subsection 1(3) of
the Protection of Businesses Act.
[27] The arbitrator,
in summarising the dispute, referred to the Respondent as a
businessman “specialised in mining activities”.
He
furthermore referred to the various mining transactions relating to
mining businesses and specific mining sites and outlined
these
aspects contained in the Claimant’s claim dated 8th August
2007, which he sets out in the terms of reference.
[28] The Applicant,
on the other hand, relying on the restrictive interpretation, submits
that the transaction dealt with the sale
of shares, and not raw
materials. Therefore, the Applicant submits that Section 1(3) is
inapplicable in the present proceedings.
[29] Having regard,
inter alia, to the underlined portion of the Richman judgment above
and the restrictive approach of the courts,
I am of the view that
Section 1(3) of the Businesses Act would not be applicable to an
arbitral award arising from a dispute regarding
the sale of shares
since the shares cannot be classified as raw matter or material
(notwithstanding that such shares are shares
in a mining company).
[30] Therefore, as
the transaction in question does not fall within the scope of section
1 (3) of the Protection of Businesses Act,
the failure of the
Applicant to obtain the permission of the Minister prior to the
institution of the application, is of no significance.
Defence on the
merits – The alleged pactum de non petendo
[31] The defence
raised by the Respondent in his answering affidavit is an alleged
pactum de non petendo. The respondent alleges
therein that he entered
into an oral agreement with the applicant during 2009 that the
applicant would not proceed to litigation
or to any execution in
terms of the award until such time that the applicant had obtained
two mining licences in Armenia.
[32] The Respondent
submits that, in terms of such agreement, the Applicant would not
insist on payment and would not litigate on
the award until such time
as he had finalised and obtained licenses in respect of the two
mines. This, the Respondent contends,
was because it would make no
sense for the Respondent to pay the amount if the Applicant was
unable to obtain the licenses.
[33] The Respondent
refers to the fact that the Applicant did not proceed to enforce the
award immediately upon default. Therefore
the reasonable inference
can be drawn that such a pact was concluded between the parties and
the Applicant, for whatever reason,
then sought to insist on payment
of the amount and to “reserve his rights”.
[34] However,
contrary to the Respondent’s submissions, what is evident in
the correspondence between the Applicant and the
Respondent, is a
continuous undertaking by the Respondent to make payment to the
applicant in terms of the arbitral award. There
is, in fact, no
mention of any agreement that the Applicant would not proceed pending
the obtaining of the licenses in Armenia.
[35] In the
premises, the Respondent has set out no sustainable defence to the
application and the Applicant is entitled to the
order which he seeks
in terms of section 4 of the Enforcement Act.
The Constitutional
Position
[36] I requested
counsel to address the issue of whether Section 1(1) read with
Section 1(3) of the Protection of Businesses Act
offends against any
provision of the Constitution.
[37] In Van Dyk v
National Commissioner, South African Police Service and Another
2004
(4) SA 587
(T) Du Plessis J stated at 589:-
“A court
cannot enforce laws that are inconsistent with the Constitution and
therefore invalid. In view thereof, Courts have
the duty to consider
meru moto the constitutionality of laws that it is called upon to
enforce”.
[38] It appears to
me that on a broad interpretation of Sections 1(2) and 1(3),
virtually every transaction would be subject to
approval by the
Minister.
[39] In Case and
Another v Minister of Safety and Security and Others, Curtis v
Minister of Safety and Security and Others
[1996] ZACC 7
;
1996 (3) SA 617
, a
constitutional challenge was levelled against section 2(1) of the
Indecent or Obscene Photographic Matter Act. Mokgoro J stated
at 49:-
“To determine
whether a law is overbroad, a court must consider the means used,
(that is, the law itself, properly interpreted),
in relation to its
constitutionally legitimate underlying objectives. If the impact of
the law is not proportionate with such
objectives, that law may be
deemed overbroad.
[40] The Applicant
submits that the statutory provision in the Protection of Businesses
Act, that the Minister must approve such
enforcement, is unnecessary
as our courts are able to deal with the enforcement of foreign
judgments on the basis of public policy.
Further, the Applicant
argues that such Ministerial approval can be perceived by foreign
applicants as being contrary to the intention
of the New York
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (“the New York Convention”)
and as state
interference in foreign trade agreements. As early as July 1998, the
South African Law Reform Commission (Project
94) recommended that the
Act should be repealed and replaced by legislation dealing with
international arbitrations.
[41] Criticisms have
been levelled at the Protection of Businesses Act from the academic
sphere. In his textbook “Private
International Law” (5th
ed), at 466, Forsyth describes the Protection of Businesses Act as a
clear example of “legislative
overkill”. Since most
foreign judgments concern “ownership [or possession of]…any
matter or material”,
a literal interpretation of the Act
requires ministerial permission for the enforcement of just about any
judgment.
[42] Importantly, as
highlighted by the SALRC in its paper Concerning its Investigation
into Consolidated Legislation pertaining
to international
co-operation in civil matters (supra) at 4.2.2:-
“[The
Protection of Businesses Act] was passed during the apartheid years,
when South Africa had restricted dealings with
the international
business community.”
And further at
5.2.9:-
“[Section 1 of
the Act] was intended to block undesirable foreign policies.”
[43] The SALRC
Concerning its Investigation into Consolidated Legislation pertaining
to international co-operation in civil matters
(supra) commented
that:-
“The principal
aim of the Protection of Businesses Act 99 of 1978 is to protect
South Africans from the draconian effects
of certain foreign laws, in
particular those allowing awards of penal or multiple damages.”
As Forsyth (supra)
at 402 explains, the Act was originally enacted “to protect
South African businesses from the far-reaching
tentacles of American
anti-trust legislation".
[44] It was
furthermore considered that the Protection of Businesses Act had been
and remained a major obstacle to the principle
of international
judicial co-operation and that, in the majority of cases, the
provisions of the Act frustrated uncontentious requests.
It was
stated that the Act could be interpreted as signalling a hostile and
defensive attitude to the international community.
[45] There are, in
my view, three bases upon which the overbreadth of the Sections might
be considered unconstitutional:
45.1. In terms of
Section 165 of the Constitution, which provides:-
“(1)The
judicial authority of the Republic is vested in the courts.
(2) The courts are
independent and subject only to the Constitution and the law, which
they must apply impartially and without fear,
favour or prejudice.
(3) No person or
organ of state may interfere with the functioning of the courts.
(4) Organs of state,
through legislative and other measures, must assist and protect the
courts to ensure the independence, impartiality,
dignity,
accessibility and effectiveness of the courts.
(5)…
(6)...”
45.2. In terms of
Section 34 of the Constitution, which provides:-
“Everyone has
the right to have any dispute that can be resolved by the application
of law decided in a fair public hearing
before a court or, where
appropriate, another independent and impartial tribunal or forum.”
45.3. In terms of
Section 231(5) and Section 233 of the Constitution, which provide:-
“231(5) The
Republic is bound by international agreements which were binding on
the Republic when this Constitution took effect.”
…
233. When
interpreting any legislation, every court must prefer any reasonable
interpretation of the legislation that is consistent
with
international law over any alternative interpretation that is
inconsistent with international law.”
[46] Section 36 of
the Constitution deals with limitations on other rights enshrined in
the Constitution. Such limitation must however
be reasonable and
justifiable. It could be argued that Sections 1(1) and Section 1(3)
of the Protection of Businesses Act amount
to an executive
intervention in the sphere of the Judiciary (contrary to Sections 34
and 165 of the Constitution).
[47] In relation to
Sections 231(5) and 233 of the Constitution, the Applicant referred
to the New York Convention (supra). Recognising
the growing
importance of international arbitration as a means of settling
international commercial disputes, the New York Convention
sought to
provide common legislative standards for the recognition of foreign
arbitration agreements and court recognition and
enforcement of
foreign and non-domestic arbitral awards.
[48] The New York
Convention’s principal aim was that foreign and non-domestic
arbitral awards would not be discriminated
against, and parties were
obliged to ensure that such awards were recognised and generally
capable of enforcement in their jurisdiction
in the same way as
domestic awards.
[49] South Africa
acceded to the New York Convention on 3 May 1976. The South African
Legislature gave effect, from 13 April 1977,
to its accession by
enacting the Recognition and Enforcement Act.
[50] The New York
Convention was binding on South Africa when the Constitution took
effect on 4 February 1997, and it remains so.
Section 231(5) of the
Constitution provides that:-
“The Republic
is bound by international agreements which were binding on the
Republic when the Constitution took effect”.
[51] It is submitted
by the Applicant that in 1978, the legislature reneged on its
international undertakings by enacting the Protection
of Businesses
Act. It is contended that several provisions of the Act, including
section 1 thereof, insofar as they relate to arbitrations:
1. discriminate
against foreign arbitration awards relating to the acts or
transactions referred to therein;
2. do so in
circumstances in which:
2.1. the subject
matter of the dispute was or would be capable of settlement by
arbitration in terms of South African law; and
2.2. nothing about
the recognition and enforcement of the award would offend against
public policy in South Africa.
[52] In terms of
Section 1A of the Protection of Businesses Act, the enforcement of
multiple or punitive damages is prohibited.
The Recognition and
Enforcement Act also provides for the courts discretion if the award
is contrary to public policy.
[53] According to
the Applicant, the limitations already in place in the Recognition
and Enforcement Act and Section 1A of the Protection
of Businesses
Act are sufficient to curtail the likelihood of the abuse of our
courts in relation to foreign arbitration awards.
[54] The Respondent,
on the other hand, contends that the Protection of Businesses Act
does not outright prohibit the enforcement
of a foreign arbitral
award. The Act only introduces a procedural aspect (the Minister’s
approval) relating to the enforcement
of foreign arbitral awards.
[55] He submits that
in terms of Section 4 of the Recognition and Enforcement Act, a Court
may refuse to grant an application for
an order of Court in terms of
Section 3 if the Court finds that:
55.1. A reference to
arbitration is not permissible in the Republic in respect of the
subject matter of the dispute concerned;
55.2. Enforcement of
the award concerned would be contrary to public policy in the
Republic.
[56] The Respondent
submits that the Protection of Businesses Act simply introduces
additional procedural requirements for the enforcement
of certain
foreign arbitration awards. The additional procedural requirement is
the permission of the Minister of Finance (previously
Minister of
Economic Affairs).
[57] It is this
“procedural requirement” which needs to be analysed to
ascertain whether or not it is in conflict with
any provision of the
Constitution.
[58] In order for
this issue on the constitutionality of the Protection of Businesses
Act to be adjudicated upon, it would be necessary,
inter alia, for
the Minister of Finance, the Minister of International Affairs and
Cooperation and the Minister of Justice and
Constitutional
Development to be joined to these proceedings. See Van der Merwe v
Road Accident
[2006] ZACC 4
;
2006 (4) SA 230
(CC) at
[8]
. None of the parties sought
to do this. In addition, there are other interested parties that may
wish to make submissions.
[59] As I am able to
decide this matter on the facts before me, it is not necessary, at
this stage, to postpone the matter for those
parties to be joined and
for the constitutional matter to be decided upon. See Director of
Public Prosecutions, Transvaal v Minister
for Justice and
Constitutional Development and Others
2009 (4) SA 222
(CC) at [38]:-
“The High
Court also referred to the general principle that constitutional
issues should not be decided prior to a decision
on factual issues or
matters of law with which have no constitutional implication, unless
the decision on the constitutional issue
is necessary for a proper
assessment of the non-constitutional issues at stake.”
And further at
[43]:-
“A court may
therefore, of its own accord, raise and decide a constitutional issue
where…a decision on the constitutional
question is necessary
for a proper determination of the case before it.”
[60] If this matter
proceeds further, the Applicant will have the choice whether to
pursue the route of unconstitutionality and
join the necessary
parties.
Conclusion
Accordingly, the
following order is made:
1. The order granted
on 6 May 2014 is recalled.
2. The arbitration
award annexed hereto is made an order of court.
3. The Respondent is
directed to pay the Applicant:-
3.1. The sum of R53
074 092,50;
3.2. Interest on the
amount of R53 074 092,50 at the rate of 9% per annum from the 24th of
April 2009 until the date of final payment.
4. The Respondent is
directed to pay the costs of suit, including the costs consequent
upon the employment of two counsel.
WEINER J
Counsel for the
Applicant: Adv. Miltz SC with Adv. Bitter
Applicant’s
Attorneys: Edward Nathan Sonnenbergs
Counsel for the
Respondent: Adv. Bava SC
Respondent’s
Attorneys: Shepstone & Wylie Attorneys
Date of Hearing:
3 February 2014
Date of Judgment:
6 May 2014