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[2020] ZAGPJHC 7
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Khum MK Investments and Bie Joint Venture (Pty) Limited v Eskom Holdings SOC and Another (30169/2018) [2020] ZAGPJHC 7 (23 January 2020)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA,
GAUTENG
LOCAL DIVISION,
JOHANNESBURG
CASE
NO: 30169/2018
In
the matter between:
KHUM
MK INVESTMENTS AND
BIE
JOINT
VENTURE (PTY)
LIMITED
Applicant
And
ESKOM
HOLDINGS
SOC
First
Respondent
JUDGE
LI
GOLDBLATT
Second
Respondent
J
U D G M E N T
MODIBA
J
[1]
The
question to be resolved in this application is whether when he upheld
a plea of prescription for the reasons that he did, the
arbitrator
committed an error of fact and law, resulting in gross irregularities
in the conduct of the proceedings and/ or exceeded
his powers as
envisaged in section 33(1) (b)
[1]
of the Arbitration Act (“the Act”).
[2]
Unless otherwise specified, all references to statutory provisions
are to this Act.
[2]
The applicant, Khum MK Investments and BIE Joint Venture (Pty) Ltd
(“Khum Investments”) contends that he did,
hence it seeks
to review and set aside what I refer to in this judgment as the
second arbitral award in which the arbitrator upheld
the first
respondent’s special plea of prescription.
[3]
The first respondent, Eskom SOC Limited (“Eskom”),
opposes the application. The Second Respondent Judge LI
Goldblatt,
cited in his capacity as the arbitrator (“the arbitrator”),
did not enter the fray.
[4]
The present application arises out of a somewhat elaborate litigation
history between the parties.
[5]
On 16 April 2009, Eskom and a joint venture entered into a
professional services contract (“the contract”),
in terms
of which the joint venture would render to Eskom safety, health,
environmental and quality inspection services (“SHEQ
services”)
on an
ad hoc
basis as and when Eskom required them. The
joint venture would provide the SHEQ services at construction and
installation
sites mainly were Eskom undertook generation and/ or
transmission projects. It started doing so on 27 May 2010.
[6]
Subsequently, the members of the joint venture purchased a shelf
company and changed its name to Khum MK Investments and
BIE Joint
Venture (Pty) Ltd. The two joint venture members became the only
equal shareholders in Khum Investments. Khum Investments
performed
SHEQ services under the contract and rendered invoices under its
name, which Eskom honoured.
[7]
In 2013, the contract became litigious due to a dispute regarding
payments allegedly due to Khum Investments under the
contract. As a
result, Khum Investments brought urgent proceedings in this court
(“the urgent application”) for the
payment of an amount
of R121, 007,097.08, set down for hearing on 24 October 2013. On that
day, the parties did not proceed to
argue the urgent application.
Rather, they entered into a written settlement agreement (“the
settlement agreement”)
in terms of which:
[7.1] Eskom would pay all
approved invoices;
[7.2] Eskom is entitled
to withhold payment in respect of the disputed amounts;
[7.3] the remaining
disputes in relation to the disputed invoices, as well as any other
disputes arising after 30 October 2013,
are referred to arbitration
in terms of article 23 of the Rules of Commercial Arbitrations of the
Arbitration Foundation of South
Africa (“AFSA”).
[8]
Pursuant to the settlement agreement, Eskom paid Khum Investments R96
million on 25 October 2013.
[9]
Khum Investments duly referred the remaining disputes to AFSA. It did
not attach its referral letter to this application.
It attached
AFSA’s reply, dated 4 November 2013,
inter alia
informing the parties of the arbitrator’s appointment.
Subsequently, the arbitrator addressed a letter to the parties
inter
alia
, inviting them to a pre-arbitration meeting to be held on 13
November 2013 at AFSA offices. The meeting took place as scheduled.
There, the parties agreed that the dispute would be set out in
pleadings to be delivered on agreed dates. In compliance with this
agreement, Khum Investments delivered a statement of claim (“SOC”)
on 13 December 2013 and Eskom a statement of defence
(“SOD”)
on 27 January 2014. Subsequently, Khum Investments delivered a
replication and Eskom a rejoinder.
[10]
It is common cause that on 14 November 2013, Eskom served Khum
Investments with a 30 day notice to terminate the contract,
effective
13 December 2013. Khum Investments continued to provide SHEQ services
to Eskom under the contract until the termination
date.
[11]
The SOC sets out 15 claims, which Eskom defended on legal and/or
factual grounds. Subsequently, the parties agreed to a separation
of
two dispositive issues, namely, the
locus standi
special plea
and the contracting party defence. For brevity, I refer to the
arbitration in respect of these issues as the first
arbitration.
[12]
The basis for special plea and the contracting party defence is the
same. It arises from what I have already revealed, that
Khum
Investments is not party to the professional services agreement and
that a joint venture is. For that reason, Eskom contended
that Khum
Investments had no right to join the arbitration. It also contended
that it had no right to pursue the claims further.
In its
replication, Khum Investments contended that Eskom acquiesced and/ or
ratified its substitution of the joint venture, alternatively,
represented to that effect by conduct and therefore was estopped from
denying that Khum Investments is a party. In its rejoinder,
Eskom
denied knowledge of and consenting to the substitution and for that
reason, contended that it cannot be estopped from denying
the
substitution. It also contended that to uphold the estoppel would
invalidate an illegal act as Khum Investments was not subject
to its
peremptory procurement processes.
[13]
In an arbitral award published on 14 April 2014 (“the first
arbitral award”), the arbitrator dismissed Eskom’s
locus
standi
special plea and contracting party defence and upheld Khum
Investment’s acceptance or ratification argument and estoppel
plea.
[14]
In a judgment by my brother Moshidi J, handed down on 4 June 2015,
Eskom was unsuccessful in reviewing the first arbitral award
(“the
first review”). It brought the review in terms of section
33(1) (a) and (b), on the basis that the arbitrator
committed a
misconduct or gross irregularity. Eskom successfully petitioned the
Supreme Court of Appeal (“SCA”), which
granted leave to
appeal to the Full Court of this division. On 24 February 2017, the
Full Court dismissed the appeal with costs.
On 23 March 2017, Eskom
applied to the SCA for special leave to appeal the Full Court
decision. The SCA dismissed that application
on 22 May 2017. Eskom
did not appeal further.
[15]
The arbitration in respect of Khum Investments’ remaining
claims would then continue at an arbitration hearing scheduled
for 9
to 13 (“the first period”) and 30 October to 10 November
2017 (“the second period”). On 14 September
2017, Khum
Investments delivered a notice to amend its SOC, by either increasing
or decreasing some of the claims. Eskom initially
objected to the
amendment on the basis that it sought to introduce new claims that
were not part of Khum Investments’ original
claims as filed on
13 December 2013 for example claim 15, originally for an amount of
R1,849,354.60 to be increased to R69,437,994.76
as a result of the
amendment.
[16]
By agreement between the parties, the arbitration did not proceed
during the first period to allow the parties to study the
spreadsheets filed in support of the amendment, in order to assist
Eskom to understand the basis for the proposed amendment.
Subsequently,
Eskom consented to the amendment but reserved its right
to raise the special plea of prescription in relation to some of the
claims.
It filed its amended SOD on 27 October 2017, raising the
special plea of prescription. Khum Investments replicated to the
special
plea, denying that the relevant claims have prescribed.
[17]
The parties then agreed to a list of issues, which they submitted to
the arbitrator to be dealt with separately during the
second period
(“the second arbitration”). Included in this list is the
legal question whether the new amounts introduced
by the amendment
had prescribed. The separated issues where dealt with during the
second period. The arbitrator upheld Eskom’s
special plea of
prescription (“the second arbitral award”). It is this
arbitral award that Khum Investments seeks to
review in these
proceedings.
[18]
One preliminary issue arose.
[19]
Eskom
complained that in terms of section 32
[3]
,
Khum Investments ought to have brought this application within six
weeks of the publication of the second arbitral award. The
second
arbitral award is dated 22 January 2018. It was delivered to the
parties on 24 January 2018. Khum Investments had to bring
the review
by 7 March 2018. It only did so on 22 August 2018, approximately five
and half months later. To justify the delay, Khum
Investments relied
on an alleged agreement between the parties’ attorneys of
record to suspend the six weeks period while
inter
alia
,
the parties were attempting to settle the entire dispute.
[20]
Eskom initially disputed the parties’ competency to suspend a
statutory time frame by agreement, alternatively, that
its attorney
of record agreed to an indefinite suspension of the period within
which Khum Investments had to bring the review.
It contended that
such an agreement, if found to have been concluded, would have lapsed
after the 20 March 2018 meeting at which
the parties failed to reach
settlement.
[21]
It sought a dismissal of the application on the sole basis that it
was brought hopelessly out of time. At the hearing, Eskom
abandoned
its opposition, preferring that the matter is dealt with on the
merits. Given that:
[21.1] the underlying
process of resolving disputes between the parties is arbitration,
underpinned by consensus;
[21.2] although the Act
sets a timeframe within which the review ought to be brought, which
Khum Investments defaulted on;
[21.3] the purported
agreement to suspend the applicable time frame excluded the
arbitrator who has a substantial interest in these
proceedings;
[21.4] considering that
the arbitrator is cited and opted not to enter the fray;
I
considered it appropriate under these circumstances, to heed Eskom’s
desire to have the dispute resolved on its merits.
[22]
Khum Investments contends that it amended its SOC for two reasons.
Firstly, when preparing for the continued arbitration, it
found
mistakes in the schedules attached to its SOC. It found that
certain claims in respect of certain resources were duplicated
and
other claims in respect of hours worked and/ or travel and
subsistence were excluded from the schedules by mistake. Therefore,
it introduced the amendment to add and/ or subtract amounts to the
schedules to correct these errors. It further contends that
the basis
for the claims remains the same.
[23]
Secondly, it sought to introduce the claims provided for in paragraph
8 of the settlement agreement, namely the claims in respect
of
disputes arising after 30 October 2013, as it submitted its
pro
forma
invoices in respect of those claims to Eskom on 07 February
2014. It contends that these amounts were claimed in the amended
Claim
15 and specifically annexures “BBB” – October
2013, “CCC” – November 2013 and “DDD”
–
December 2013 thereto. The total amounts in respect of hours worked
only and with the exclusion of any travelling and/
sustenance costs
are:
[23.1] annexure “BBB”
– R20 918 216.90 (R21 832 737.50 plus CPI
R7 184 084.37 plus
kilometres R901 394.99);
[23.2] annexure “CCC”
– R20 753 618.10 (R15 111 437.50 plus CPI
R4 972 427.94 plus kilometres
R669 752.72).
[23.3] annexure “DDD”
– R7 534 326.23 (R5 479 787.50 plus CPI
R1 803 129.28 plus
kilometres R251 409.45.
[24]
Khum Investments further contends that Eskom ignored these
pro-forma
invoices, did not proceed with the assessment process previously
followed and failed to pay the claims in respect of SHEQ services
rendered and costs incurred after the hearing of the urgent
application on 24 October 2013 until the 13 December 2013 termination
date.
[25]
In its amended SOD where it pleaded prescription, Eskom contends that
claims introduced by way of this amendment have prescribed.
[26]
Khum Investments replicated that in terms of the settlement agreement
reached on 24 October 2013, all disputes between the
parties,
including all disputes arising after 30 October 2013, were referred
to arbitration. It further replicated that in terms
of
section 13(f)
of the
Prescription Act, 68 of 1969
, all the disputes between the
parties were subjected to arbitration and that these disputes include
all the amounts claimed.
[27]
Leading up to the second arbitration hearing, the parties concluded a
written agreement in respect of the separated issues.
In terms of
clause 7 thereof, they agreed that part of the separated issues for
decision at hearing would be whether any claim
for hours worked or
travel and subsistence which did not appear in the claimant’s
SOC as at 14 April 2014, and sought to
be introduced by way of an
amendment, had prescribed.
[28]
I quote below the arbitrator’s handling of this issue, as
reflected in the second arbitral award:
“
9.
ISSUE
7 PRESCRIPTION (CLAIMS 4, 5,6,7,8 AND 15
)
9.1 On 14 September
2017, Claimant amended its statement of claim to, inter alia,
introduce new claims in that each portion of each
claim constitutes
in my opinion a separate and distinct cause of action.
9.2 Each of these
additional claims was more than three years old and were accordingly
prescribed in terms of the
Prescription Act 68 of 1969
.
9.3 The Claimant
replicated to Defendant’s Plea of Prescription alleging that
Prescription alleging that Prescription had
been interrupted by the
parties having agreed that – “all disputes between the
first Claimant and the Respondent including
all disputes arising
after 31 October 2013, were referred to arbitration” and thus
in terms of
Section 13
(f) of the
Prescription Act, all
these
disputes were “subjected to arbitration”.
9.4 The Defendant
argues that a dispute is not “subjected” to arbitration
until such dispute is the subject of an actual
arbitration (Member of
the Sugar Industry Central v Maritz and Another
1984 (4) SA 101).
I
agree with the submission ad find that the new claims introduced by
the amendments were only introduced i.e. when they had already
prescribed.
9.5
FINDING
The claims for hours
worked or T & S did not appear in the statements of claim as at
April 2014 and are now sought to be introduced
by the way of
amendment have prescribed.”
[29]
Khum Investments contends that prescription cannot be raised against
its amendment because:
[29.1] in terms of
section 13
(f) of the
Prescription Act, completion
of prescription is
delayed if the debt is the object of a dispute subjected to
arbitration and that the settlement agreement had
that effect;
[29.2] the
amendment does not introduce any new cause of action. The new amounts
formulated in claim 15 merely represent a
fresh quantification of the
original claims and/ or the addition of further items arising from
the same cause of action;
[29.3] at that
stage, the issue in dispute was who the applicant had to pay and not
whether monies were payable for services
rendered.
[29.4] the referral
of the disputes and future disputes by the parties in the settlement
agreement is not merely an agreement
to refer disputes to arbitration
as referred to in
Sugar
Industry Central
[4]
,
but the referral to an arbitration actually proceeding. By failing to
distinguish the facts and principles in
Sugar
Industry Central
,
the arbitrator failed to apply the
Prescription Act, which
required
him to have held that the matter was subject to prescription in terms
of
section 13
(f);
[28.5] the words in
clause 8 of the settlement agreement, namely “All disputes
arising after 30 October 2013 shall also
form part of the
arbitration,” means that the disputes as contained in the
amended statement of claim were subjected to arbitration
as provided
for in the
Prescription Act and
therefore prescription has been
delayed;
[29.6] by finding
that the new claims introduced by the amendment were only subjected
to arbitration when they were introduced
is based on a misconception
of the law and facts as the claims were subjected to arbitration in
terms of clause 8 of the arbitration
agreement, which arbitration
proceedings commenced on 4 November 2013 with the appointment of the
arbitrator;
[29.7] the
consequences of the arbitrator’s factual error in fact and in
law resulted in gross irregularities in the
conduct of the
proceedings in that the arbitrators exceeded his powers or
misconceived the nature of the enquiry and his duties
in connection
therewith. These errors are material to the outcome of the
arbitration, in that they rendered the outcome of the
continuation of
the arbitration, as far as it relates to the plea of prescription
unreasonable as it denies Khum Investments to
claim payment on
amounts in respect of resources who worked for Eskom to its benefits
in the amounts set out in the amended claims
9 and 15 compared with
the original SOC. Therefore a reasonable arbitrator could not have
reached the same conclusion regarding
prescription as this arbitrator
on all the material that was before him. In this regard, it relied on
Telcordia
Technologies Inc v Telkom SA.
[5]
[30]
Eskom contends that Khum Investments’ reliance on
section 13
(1) (f) of the
Prescription Act is
misplaced. It further contends
that while it does not have to show in these proceedings that that
the arbitrator was correct as
an arbitral award is only reviewable on
the basis of a gross irregularity in the conduct of the arbitration
proceedings, the arbitrator
correctly upheld the prescription plea
because:
[30.1]
acknowledging that there are disputes that exists between the
parties, in terms of clause 1,3 and 8 of the settlement
agreement,
the parties referred all existing disputes and disputes arising after
30 October 2013, to urgent arbitration;
[30.2]
section 31
(1) (f) of the
Prescription Act provides
that the running of
prescription is delayed if the debt is the object of a dispute
subjected to arbitration.
[30.3] based on
Sugar Industry Central
, reference to arbitration must be
distinguished from the concept of a dispute subjected to arbitration
as contemplated in
section 13
(1) (f) if the
Prescription Act.
Khum
Investments’ disputes could not have been subjected to
arbitration when the parties concluded a settlement agreement because
the applicant had not formulated its disputes.
[30.4] Khum
Investments only formulated its disputes in the SOC, delivered on 13
December 2013. It had between 30 October
2013 and the delivery of its
SOC to include its disputes with Eskom in the SOC. Only then were its
disputes subjected to arbitration
in terms of
section 13
(1) (f).
[31]
The parties are
ad idem
regarding the legal principles
applicable to the review of arbitral awards, which have become trite.
[32]
The power of a court to review a consensual arbitration award is
limited to the grounds listed in
section 33(1).
There are no residual
common law grounds on which the court may review an arbitration award
made in terms of the Act.
[33]
To succeed under
section 33(1)
(b), the applicant ought to show
that:
[33.1] the arbitrator has
committed a gross irregularity in the conduct of the arbitration
proceedings; or
[33.2] exceeded his
powers.
[34]
A finding
that the arbitrator committed a factual error leading him to a wrong
conclusion is insufficient to render an arbitral
award reviewable.
Such an error only renders an arbitral award reviewable if it results
from failure by the arbitrator to act in
terms of his mandate. The
word “misconduct” does not extend to a
bona
fide
error of fact or law by the arbitrator. It is only where
a mistake is so gross or manifest as to evidence misconduct,
mala
fides
or partiality on the part of the arbitrator that it renders the award
reviewable.
[6]
[35]
This court’s disagreement with the arbitrator’s decision
on the basis that it is incorrect is irrelevant. The arbitrator’s
decision is not reviewable because it is wrong. An arbitrator is
allowed to be wrong. The applicant must not only allege that the
arbitrator’s decision was legally wrong. It must show that no
reasonable arbitrator could have made the decision on the material
before him.
[36]
I resorted to these principles to determine the merits of this
application.
[37]
Khum Investments has offered two divergent reasons for amending its
SOC. On the one hand, it asserts that it would have made
no sense to
have incurred more costs by amending the SOC earlier when the whole
basis of the claim, namely, its
locus standi
was
sub judice
in arbitration and subsequently, review and appeal proceedings. On
the other hand, it asserts that it did not amend the SOC because
it
believed that the amended schedules were covered by the settlement
agreement.
[38]
The first reason seems to relate to an election Khum Investments made
at the time, to wait until all the proceedings relating
to the first
arbitration were exhausted prior to amending the SOC. Therefore it
has to bear the consequences of this election.
The second seems to
relate to a view it held, that the settlement agreement covered the
amended schedule. This view was not upheld
by the Arbitrator.
[39]
Eskom’s contention that the new amounts which Khum Investment
sought to introduce by way of an amendment, constitute
new debt as
envisaged by the
Prescription Act and
has prescribed, was upheld by
the Arbitrator. The Arbitrator also rejected Khum Investment’s
contention that all the disputes
between the parties became subject
to arbitration when the settlement agreement was concluded. The
Arbitrator’s conclusion
cannot be faulted.
[40]
Khum Investments has not established any irregularities in the
proceedings. Its complaint lies against the result of the
arbitration.
In the absence of any irregularities, the review is
competent. .
[41]
Khum Investments has also failed to show that the Arbitrator
misconstrued the nature of the enquiry he is required to undertake,
his duties and the scope of his powers. The relevant terms of the
settlement agreement are clear and hardly require interpretation.
The
parties agreed to refer all disputes between them to urgent
arbitration in terms of Article 23 of the rules for commercial
arbitration of AFSA, whether such disputes arose before or after 30
October 2013. This is an agreement to refer. Its conclusion
did not
subject the disputes between the parties to arbitration. This
construction is supported by the agreement at the first meeting
with
the Arbitrator to set out the parties’ respective claims and
defences in their SOC and SOD. The SOC and SOD were only
filed on the
dates stated earlier. Until the SOC was filed, the disputes between
the parties were not subject to arbitration. They
only became subject
to arbitration when the SOC was filed, initiating the arbitration.
Therefore, Khum Investment’s reliance
on
Sugar Industry
Central
is misplaced.
[42]
Prior to the second arbitration, the parties agreed on the issues to
be determined by the Arbitrator, which included Eskom’s
prescription point. Therefore, by determining this point, the
Arbitrator acted within his mandate. He did not misconstrue the
nature of the enquiry in relation thereto. By determining the
question against Khum Investment, the Arbitrator did not, by his own
conduct deny Khum Investment the right to claim payment on these
amounts. His determination that Khum Investment’s new claims
have prescribed invariably has the effect that those claims become
excluded from the rest of the arbitration. This is the consequence
of
the nature of the legal question that the Arbitrator was called upon
to determine. It is not consequent upon the arbitrator’s
conduct.
[43]
Khum Investment’s attempt to attribute the exclusion of the
claims to the conduct of the arbitrator is disingenuous,
as the
parties went into the second arbitration fully conversant with the
consequences that would flow from his decision. For that
reason, the
review is brought on spurious grounds, warranting a punitive cost
order as claimed by Eskom.
[44]
In the result, the following order is made:
ORDER
1. The application is
dismissed with costs on the attorney and client scale.
__________________________
MADAM
JUSTICE
L T MODIBA
JUDGE
OF THE HIGH COURT,
GAUTENG LOCAL
DIVISION, JOHANNESBURG
APPEARENCES
Counsel
for applicant: Advocate GC Pretorius SC
Advocate
IM Lindeque
Attorney
for applicant: Breytenbach Mostert Skosana Inc
Counsel
for first respondent: Advocate A Gautschi SC
Advocate
M Seape
Attorney
for first respondent: Koikanyang Incorporated
Date
of hearing: 29 August 2019
Date
of judgment: 23 January 2020
[1]
This section provides:
Setting
aside of award
(1)
Where-
(a)
…
(b)
an arbitration tribunal has committed any gross irregularity in the
conduct of the arbitration proceedings or has exceeded its
powers;
[2]
43 of 1965
[3]
This section provides:
Section
32
(2)
”
An
application pursuant to this section shall be made within six weeks
after the publication of the award to the parties
…”
[4]
Member
of the Sugar Industry Central v Maritz and Another
1984 (4) SA 101
[5]
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA)
[6]
Lufuno
Mphaphulj and Associates (Pty) Ltd v Andrews and Another
(2009 (6) BCLR 527
(CC) at para 7.