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[2019] ZAGPJHC 370
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Samancor Chrome Holdings (Pty) Limited and Another v Samancor Holdings (Pty) Limited and Others (42659/18) [2019] ZAGPJHC 370; [2019] 4 All SA 906 (GJ) (24 October 2019)
HIGH
COURT OF SOUTH AFRICA
(GAUTENG
DIVISION, JOHANNESBURG)
Case
No: 42659/18
In
the matter between:
SAMANCOR
CHROME HOLDINGS (PTY)
LIMITED
First
Applicant
SAMANCOR
CHROME
LIMITED
Second
Applicant
and
SAMANCOR
HOLDINGS (PTY)
LIMITED
First
Respondent
BHP
BILLITON SA
LIMITED
Second
Respondent
ANGLO
SOUTH AFRICA CAPITAL (PTY)
LIMITED
Third
Respondent
Case
Summary:
Arbitration
-
Arbitration Act, 42 of 1965
-
section 8
-
discretionary power of court to extend
the time stipulated in a time-bar clause for commencing arbitration
proceedings if the court
'is of the opinion that in the circumstances
of the case undue hardship would otherwise be caused'
-
interpretation of the words 'undue hardship' and application of
the provision
-
factors to be taken into account in
considering whether or not to exercise the discretionary power.
JUDGMENT
MEYER,
J
[1]
This application concerns the enforceability of a time-bar provision
for commencing arbitration proceedings contained in an
agreement, and
particularly whether the enforcement of the time-bar period would
cause 'undue hardship' within the meaning of
s 8
of the
Arbitration
Act, 42 of 1965
. The material facts are essentially uncontentious.
[2]
A sale of shares agreement was concluded on 15 February 2005 between
the first applicant, Samancor Chrome Holdings (Pty) Ltd
(SCH) and the
second applicant, Samancor Chrome Limited (the company), on the one
hand, and the first respondent, Samancor Holdings
(Pty) Ltd (SH), the
second respondent, BHP Billiton SA Limited (BHP), and the third
respondent, Anglo South Africa Capital (Pty)
Limited (ASAC), on the
other (the agreement). The shareholders of the company before the
agreement was implemented, were BHP and
ASAC, and they bound
themselves as sureties for the·obligations of SH arising from
the agreement. The company principally
consisted of a chrome business
division, a manganese business division and a stainless-steel
business division.
[3]
In terms of the agreement the entire issued share capital of the
company (with the chrome division remaining with the company)
was
sold to SCH. The effective date of the agreement was 1 June 2005, and
the closing date 3 April 2006. From 1 June 2005, the
company
conducted the business of the chrome division for its own account and
profit and loss, and BHP and ASAC, through SH, the
business of the
manganese division for its own account and profit and loss, which
divisions had historically also been conducted
separately by the
company. The company remained the only taxpaying entity for any
income tax liability to the South African Revenue
Service (SARS) in
respect of both the chrome and manganese divisions during the interim
period from 1 June 2005 until 3 April 2006.
This means that although
the company only operated the chrome division for its benefit, it was
liable to pay income tax in respect
of both divisions. As from 1
April 2006, the manganese division became a taxpaying entity and from
then its income tax no longer
affected the company.
[4]
SH, in terms of the agreement, furnished indemnities to SCH and the
company in respect of,
inter alia,
income tax (together with
penalties and interest) that was attributable to the manganese
operations of SH, but which was paid to
SARS by the company. In this
regard clause 24.1.5 of the agreement provides:
'24.1 Subject to the
provisions of clauses 23.3 to 23.9 inclusive, the Seller indemnifies
the Purchaser and the Company, with effect
from the Effective Date,
against all loss, liability, damage or expense which the Purchaser
and/or the Company, as the case may
be, may suffer as a result of
which may be attributable to:
24.1.5
any proved liability of the Company and/or any Subsidiary
and/or Associated Company for Taxation in respect of the Excluded
Assets,
or any of them; and/or in respect of the Chrome Operations if
such liability in respect of the Chrome Operations shall not have
been provided for in the Effective Date Financial Statements or
disclosed in writing by the Seller to the Purchaser in the Disclosure
Letter for all periods prior to the Effective Date, for which purpose
the term "Taxation" shall include, without limiting
the
generality of the term-
24.1.5.1
Income Tax;
24.1.5.2
value-added tax and/or imposts of a similar nature;
24.1.5.3
levies payable;
24.1.5.4
all other forms of taxation;
24.1.5.5
any employee taxes;
24.1.5.6
any taxation arising from new assessments of taxation and/or
the reopening of any Income Tax assessments of the Company and any
Subsidiary; and
24.1.5.7
any penalties or interest as a result thereof;'
[5]
The agreement contemplated that it may take an extended period of
time to obtain ministerial approval to be able to effect the
transfer
of the mineral rights and to obtain the outstanding tax assessments
and render the outstanding tax returns, including
those that relate
to the interim period. At the time when the agreement was concluded
the last income tax assessment issued to
the company was in respect
of the 1998 year of assessment and the last income tax return
submitted by the company was in respect
of the 2003 year of
assessment. Clause 16.1 made provision for the transfer of mineral
rights to be completed by 1 May 2009, or
such other date as may be
allowed by the
Mineral and Petroleum Resources Development Act, 28 of
2002
, and clause 23.6.3 (the time-bar clause) made provision for the
indemnity in favour of SCH and the company in respect of income
tax
payable by or levied on the company to be operative until the sixth
anniversary of the effective date, i.e. until 1 June 2011.
A claim
that falls within the ambit of clause 24.1.5 is subject to the
time-bar clause, which reads thus:
'23.6 Any claim made upon
the Seller in respect of any representations, undertakings or
warranties contained in this Agreement or
indemnities contained in
clause 24, other than clause 24.1.1 and 24.1.2, shall be wholly
barred and unenforceable unless:
…
23.6.3 in respect of any
Income Tax payable by or levied on the Company, proceedings in
respect thereof shall have been issued and
served prior to the sixth
anniversary of the Effective Date.'
[6]
The time-bar clause thus afforded SCH and the company a six-year
period from the effective date, 1 June 2005, to make any claim
in
respect of any income tax payable by or levied on the company (the
time-bar). It limits the period of time, after the agreement
becomes
effective, for any income tax related claims (whether or not such
claim might have arisen by that date).
[7]
SH, BHP and ASAC, but especially SH, was responsible for the
preparation and submission of the company's income tax returns,
because it related to a period in respect of which their tax
department was responsible for the tax affairs of the company. The
tax return for the year ended 30 June 2005 should, in terms of the
applicable tax legislation, have been submitted by no later
than the
end of February 2006. SH, on behalf of the company, only submitted
the 2005 income tax return on 30 June 2008, twenty-eight
months late.
(The income tax return for the year ended 30 June 2006 was completed
and submitted on 27 May 2010.)
[8]
On 7 February 2011, more than thirty months later, SARS raised the
original assessment in respect of the taxable income of the
company
for the tax year ended 30 June 2005, in an amount of R1 930 290
858.00, and accordingly for income tax payable in the amount
of R559
784 348.82. During August 2011, SARS initiated a tax audit in
relation to the income tax payable by the company for the
tax year
ended 30 June 2005, which audit continued until about July 2012. On
27 September 2012, over four years after the return
was submitted on
30 June 2008, SARS raised an additional assessment in respect of the
taxable income of the company for the tax
year ended 30 June 2005, in
an amount of R1 982 866 029.00, and accordingly for income tax
payable in the amount of R575 031 148.41.
This represented an
increase of R52 575 171 in the taxable income of the company, and an
increased income tax liability of R15
24.6 800. SARS also imposed
additional tax penalties in the sum of R7 623 600.00, in terms
of s 76(1) of the Income Tax Act,
58 of 1962 (the Income Tax Act),
and interest in the sum of R17 267 001.00, in terms of s 89
quat
(2) of the Income Tax Act, in respect of that under-declaration
of taxable income and underpayment of income tax (an additional total
amount of R40 137 401).
[9]
The increase of R52 575 171.00 in the assessed taxable income of the
company for the 2005 year of assessment, and accordingly
the assessed
increased income tax of R15 246 800.00, it is common cause, was
attributable to the failure by SH to have correctly
calculated the
company's taxable income for the tax year ended 2005, and more
particularly its failure to add back to its taxable
income a
disallowable impairment on investments relating to the 'excluded
assets' as defined in the agreement (all of the assets
of the company
which do not form part of the chrome operations). The explanation
proffered on behalf of SH is this:
'It seems that the
impairment on the investment amounting to R53 million has been
written off in the income statement and not taken
through equity as
disclosed on schedule 46 of the income tax return. The initial
accounting treatment was through equity but with
the finalisation of
the Annual Financial Statements the amount was taken to the Income
Statement instead and the tax calculation
was never adjusted
accordingly.
The 53 million error was
an oversight and there was no intention to evade the payment of
income tax.'
It
is also undisputed that there was no manner in which SCH and the
company could have detected such an error as they did not have
access
to the necessary information for purposes of completing of the
return, especially in relation to what was ultimately a tax
liability
in respect of an excluded asset. It is thus common cause that SH was
to blame for the error and that SCH and the company
did not know, and
could not have known, of it until after the time-bar had expired.
[10]
Ultimately, after the company had objected to and lodged an appeal
against the penalties and interest raised by SARS and an
alternate
dispute process had been entered into between SARS and the company in
terms of the
Tax Administration Act, 2011
, the dispute was resolved
and the company's liability to SARS was reduced in terms of a
settlement agreement concluded in October
2013 to R27 420 297,
comprised of additional income tax in the amount of R15 246 800,
penalties in the amount of R2 287 020 and
interest in the amount of
R9 886 477 (the SARS indebtedness). The company settled the SARS
indebtedness in the total amount of
R27 420 279, by paying to SARS an
amount of R21 347 844 on 30 November 2012, and an amount of R6 072
453.00 on 19 March 2013.
[11]
SH, BHP and ASAC refused to pay the SARS indebtedness or to
acknowledge their liability. On 20 August 2013, SCH initiated
arbitration proceedings at first instance against them, claiming the
SARS indebtedness of R27 420 297.00 plus interest under different
indemnities contained in the agreement, including the indemnity
contained in clause 24.1.5 for the additional income tax liability
that they aver should have been discharged by SH, but in fact was
discharged by the company. The statement of claim was issued
and
served more than eight years after the effective date, and,
therefore, outside the six-year time-bar.
[12]
SH, BHP and ASAC pleaded in their statement of defence, dated 3
February 2014, that the claim under clause 24.1.5 was wholly
barred
and unenforceable in terms of the time-bar clause. The response of
SCH and the company was to plead in their replication
that the
enforcement of the time-bar clause would be contrary to public
policy, alternatively, that the time-bar clause falls within
the
ambit of
s 8
of the
Arbitration Act, and
they seek a stay of the
arbitration to enable them to apply to court for an extension of the
time-bar in terms of
s 8
, if their claims would otherwise be
precluded in terms of the time-bar clause.
(Section 8
of the
Arbitration Act provides
that a court may extend the time stipulated
in a time-bar clause for commencing arbitration proceedings if the
court 'is of the
opinion that in the circumstances of the case undue
hardship would otherwise be caused'.) In their rejoinder, SH, BHP and
ASAC
boldly denied that the time-bar clause was contrary to public
policy, or that it constitutes a clause falling within the ambit of
s
8
of the
Arbitration Act, or
that undue hardship would be caused if
the time-bar is not extended. The further allegation by SCH and the
company in their replication
that-
'accordingly, and in the
event that the Arbitrator finds that the claims would otherwise be
precluded pursuant to clause 23.6, the
claimants seek the arbitration
to be stayed to enable the claimants to apply to court in terms of
section 8
of the
Arbitration Act 42 of 1965
for an extension of the
periods in clause 23.6.2 and 23.6.3 of the agreement',
was
also met by a mere denial in the rejoinder.
[13]
On 5 February 2018, the arbitrator at first instance handed down an
award in which he found that the claim of SCH and the company
in
respect of the SARS indebtedness fell within the ambit of the
indemnity in clause 24.1.5 of the agreement and that, as such,
it was
subject to the time-bar clause. He applied the two-stage process
enunciated by the Constitutional Court in
Barkhuizen v Napier
[2007] ZACC 5
;
2007
(5) SA 323
(CC), finding that the claim was not time-barred as,
although the time-bar clause itself was not so unreasonable as to be
unconstitutional,
its enforcement would be 'unfair and unreasonable'
to SCH and the company, and thus contrary to public policy, because
'the circumstances
that prevented the claimants from instituting
arbitration proceedings within the time allowed by the time-bar
clauses are of such
an exceptional nature'. He further found that
even if the time-bar clause was enforceable, he would have stayed the
proceedings
to afford SCH and the company an opportunity to apply to
court for relief under
s 8
of the
Arbitration Act to
extend the
time-bar. The arbitrator at first instance, therefore, upheld the
claim under clause 24.1.5 of the agreement and an
award was made in
favour of SCH and the company.
[14]
SH, BHP and ASAC appealed against the award to an arbitration appeal
panel. In a preliminary award that was delivered on 18
October 2018,
the appeal panel upheld the arbitrator's finding that the claim in
terms of clause 24.1.5 was well-founded but found
that the time-bar
clause was not contrary to public policy. In this regard the appeal
panel,
inter alia,
stated:
'... The claimants' case
is that the time-bar should not be enforced because it will inflict
undue hardship on them. But, if they
persuade the High Court that it
would be so, the court may relieve them of the impact of the
time-bar. It seems to purge the time-bar
of the unfairness and
unreasonableness that might otherwise have rendered it contrary to
public policy. We are accordingly of the
view that, in the light of
the ameliorating effect of
section 8
, the operation of the time-bar
in this case cannot be said to be unfair and unreasonable and thus
contrary to public policy.'
[15]
The appeal panel found reinforcement for its conclusion in,
inter
alia,
the following features of the time-bar provision in this
case:
'It was entirely
foreseeable that the time-bar might defeat the claimants' claims
arising from Samancor Chrome's unforeseen liability
for income tax.
Their witness, Mr Wessel Erasmus, testified that the six year
time-bar under clause 23.6.3 was "highly optimistic"
because it was clear that unforeseen income tax liabilities might
only be discovered much later. The impact of the time-bar in
this
case was thus entirely foreseeable. It was an outcome the parties
must have foreseen when they agreed on the time-bar'
and
'The parties to the
agreement were big and powerful companies who had expert lawyers
available to them when they negotiated and
entered into the
agreement. The time-bar was thus the product of an agreement between
powerful and well-advised entities of comparable
bargaining power.'
The
appeal panel stayed the hearing of the appeal to afford SCH and the
company the opportunity to apply to the high court for relief
under
s
8
of the
Arbitration Act, and
specifically recorded that it did-
,. . . not express any
view on the merits of such an application or on the question whether
the high Court might, in the exercise
of its discretion, deny them
relief on the grounds of their delay or on some other basis'.
[16]
Hence this application for relief under
s 8
of the
Arbitration Act,
which
section reads thus:
'Where an arbitration
agreement to refer future disputes to arbitration provides that any
claim to which the agreement applies shall
be barred unless some step
to commence arbitration proceedings is taken within a time fixed by
the agreement, and a dispute arises
to which the agreement applies,
the court, if it is of the opinion that in the circumstances of the
case undue hardship would otherwise
be caused, may extend the time
for such period as it considers proper, whether the time so fixed has
expired or not, on such terms
and conditions as it may consider just
but subject to the provisions of any law limiting the time for
commencing arbitration.'
[17]
SCH and the company contend, in essence, that the enforcement of the
six year time-bar would cause them to forfeit an otherwise
good claim
for about R52.3 million (inclusive of interest), which they, but for
the claim being time-barred, have successfully
established in
arbitration proceedings and in arbitration appeal proceedings, and
that their inability to pursue that claim would
in all the
circumstances of the case amount to 'undue hardship' being caused to
them within the meaning of
s 8:
This is not an instance where they
were at fault in. not instituting their arbitration proceedings
within the stipulated time-bar
and therefore seeking an indulgence in
respect of such default. On the contrary, so they contend, SH, BHP
and ASAC are at fault;
both in under-declaring the company's tax
position for the 2005 year of assessment in the first place, and then
unduly delaying
in submitting the 2005 income tax return, and which
resulted in SCH and the company only discovering the additional tax
exposure
and accordingly the claim to recover that loss under the
indemnity after the time-bar had expired.
[18]
SH, BHP and ASAC, on the other hand, contend that there is no basis
for the relief sought by SCH and the company: They have
delayed
unduly in bringing this application and the enforcement of the
time-bar clause does not constitute 'undue hardship' within
the
meaning of
s 8.
As the appeal panel found, they argue, the parties
are sophisticated commercial entities which, advised by specialist
lawyers,
willingly entered into the agreement containing the time-bar
clause in circumstances where it was entirely foreseeable to SCH and
the company at the time that such clause might preclude them from
pursuing any income tax related claim against SH, BHP and ASAC
in
respect of the company's 2005 year of assessment. They argue that
there is accordingly no basis for SCH and the company to be
relieved
of the consequences of the enforcement of the time-bar clause they
previously agreed to now that that (clearly foreseeable)
eventuality
has come to pass.
[19]
In
Administrateur, Kaap v Asia Konstruksie (Edms) Bpk
1989 (4)
SA 458
(C), Tebutt J points out that our 1965
Arbitration Act is
modelled on the 1950 English
Arbitration Act. The
provisions of s 27
of the English Arbitration Act, 1950, were incorporated into s 8 of
our
Arbitration Act, 1965
, with the apparent intention that our
s 8
would have the same effect as the English
s 27.
Tebutt J adopted
English law on the interpretation of the words 'undue hardship' and
the application of s 27 of the English Arbitration
Act, 1950, and the
more benevolent approach adopted in English law since the decision of
the Supreme Court in
Liberian Shipping Corporation ("The
Pegasus') v A King
&
Sons Ltd
[1967] 1 All ER 934
(CA). In
Chevron South Africa (Pfy) Limited v
.
Unical
Calulo Bunker Services (Pty) Limited and another
[2011] ZAWCHC
266
(15 June 2011) paras 54-58, Zondi J followed
Asia Konstruksie
and its adoption of the
Pegasus
principles as summarised
in a later judgment of the Queen's Bench Division (Admiralty Court)
in
V/O Exportkhleb v Helmville Limited
("
The
Jocelyne”)
[1977] 2 Lloyd's Rep 121 at 129.
[20]
Section 27 of the English Arbitration Act, 1950, reads as follows:
'Where the terms of an
agreement to refer future disputes to arbitration provide that any
claims to which the agreement applies
shall be barred unless notice
to appoint an arbitrator is given or an arbitrator is appointed or
some other step to commence arbitration
proceedings is taken within a
time fixed by the agreement, and a dispute arises to which the
agreement applies, the High Court,
if it is of the opinion that in
the circumstances of the case undue hardship would otherwise be
caused, and notwithstanding that
the time so fixed has expired, may,
on such terms, if any, as the justice of the case may require, but
without prejudice to the
provisions of any enactment limiting the
time for commencement of arbitration proceedings, extend the time for
such period as it
thinks proper.
[21]
The predecessor to the English Arbitration Act, 1950, being s 16(6)
of the English Arbitration Act, 1934, had already provided
for the
court to extend a contractual time-bar period, but courts did so only
in exceptional cases and particularly where there
was no fault at all
on the part of the person seeking the extension. (See, for example,
the discussion in
Asia Konstruksie
at 467F-H and in
Pegasus
at 937.) Section 27 of the English Arbitration Act, 1950, then
followed, again providing for the court to extend the period in a
time-bar provision where 'undue hardship' would otherwise be caused.
But the English courts initially persisted in their restrictive
interpretation and application of s 27, consistent with the judicial
legacy of finding 'undue hardship' only in exceptional cases,
and
there had to be special circumstances for extending the time-bar
period.
[22]
The pivotal concurring majority judgments of Lords Denning and Salmon
in the Court of Appeal in
Pegasus
in 1967, constituted a break
from the narrow interpretation of the words 'undue hardship' in the
past in applying a considerably
more generous interpretation of what
constituted 'undue hardship' under s 27 of the English Arbitration
Act, 1950. Lord Salmon
(at 941) described the approach of the courts
until then: if the failure to appoint an arbitrator within the period
was due to
any fault on the part of the claimant, then whatever the
circumstances of the case may be, the court had no power to extend
the
time. He then stated unequivocally that 'with very great respect,
I profoundly disagree with that view'. He found (at 940-941) that
there was to be a break from the past interpretation and application
of s 27 of the English Arbitration Act, 1950, and that that
section
states-
, ... quite plainly that
if, having considered all the circumstances of the case, the court
comes to the conclusion that the hardship
imposed by the form of the
arbitration clause on the claimant is greater than that which, in
justice, he should be called upon
to bear, the time within which to
appoint an arbitrator may be extended by the court'.
And
he found that-
'[t]he question whether
those powers should or should not be exercised must turn exclusively
on the particular facts of each case
in which the question arose.
In considering this
question, the court must take all the relevant factors of the case
into account: the degree of blameworthiness
of the claimants in
failing to appoint an arbitrator within the time; the amount at
stake; the length of the delay; whether the
claimants had been
misled, whether through some circumstances beyond their control it
was impossible for them to appoint an arbitrator
in time. In the last
two circumstances which I have mentioned, it is obvious that normally
the power will be exercised.'
[23]
Lord Denning in a concurring judgment (at 938) agreed that until then
a too narrow interpretation had been placed on the requirement
of
'undue hardship', finding that-
'... undue simply means
excessive. It means greater hardship than the circumstances warrant.
Even though a claimant has been at
fault himself, it is undue
hardship on him if the consequences are out of proportion to his
fault.'
[24]
In
Jocelyne
(at 129) Brandon, J applied the principles laid
down in
Pegasus,
and
summarised them as follows:
'The guide-lines laid
down in the majority judgments in
The Pegasus
Case can, in my
view, be summarized as follows:
(1)
The words "undue hardship" ins. 27 should not be construed
too narrowly.
(2)
Undue hardship means excessive hardship and, where the hardship is
due to the fault of the claimant, it means hardship the consequences
of which are put out of proportion to such fault.
(3)
In deciding whether to extend time or not, the Court should look at
all the relevant circumstances of the particular case.
(4)
In particular, t e following matters should be considered:
(a) the length of the
delay;
(b) the amount at stake;
(c) whether the delay was
due to fault of the claimant or to circumstances outside his control;
(d) if it was due to the
fault of the claimant, the degree of such fault;
(e) whether the claimant
was misled by the other party;
(f) whether the other
party has been prejudiced by the delay, and, if so, the degree of
such prejudice.'
[25]
A subsequent Court of Appeal decision which would feature prominently
in the later English case law is that of
Libra Shipping and
Trading Corporation Ltd. v Northern Sales Ltd. ("The Aspen
Trader”)
[1981] 1 Lloyd's Rep. 273 (CA). The Court of
Appeal accepted
Pegasus
to be the key authority on the way to
approach applications under s 27 of the English Arbitration Act,
1950. Brandon LJ said this
(at 279):
'There is no doubt that
the key authority on the way to approach applications under s. 27 of
the Arbitration Act, 1950, is the case
of
Liberian Shipping
Corporation "Pegasus" v. A. King
&
Sons Ltd.,
[1967] 1 Lloyd's Rep. 303;
[1967] 2 Q.B. 86.
The case can clearly
be described as an important milestone in the development of the law
in relation to these matters. Before
that case, it had been extremely
difficult for parties who were out of time under arbitration clauses
to obtain extensions of time
if the delay was their fault, and the
Divisional Court to which applications were made for a long time was
inclined to give to
the expression "undue hardship" a very
narrow meaning indeed.
In that case the Court of
Appeal said categorically that the approach adopted by the Divisional
Courts in the past was wrong and
that a very much more liberal view
should be taken with regard to applications under s. 27.'
[26]
The intention in
Pegasus
was not to catalogue an exhaustive
list of circumstances that should be considered in deciding whether
the discretionary power to
extend the time-bar provision should or
should not be exercised (see at 943). Indeed, it was stressed in "A/
Faiha"
[1981] 1 Lloyd's Rep. 283 at 103, which case was
concerned with the application of s 27 of the English Arbitration
Act, 1950, that
all relevant factors, whatever they might be, were
required to be taken into account in assessing 'undue hardship' under
that section.
In the words of Parker LJ:
'It is in my judgment
clear that it is, in general, impossible to introduce any principles
as to the relative weight to be attached
to any particular
circumstances or the order in which relevant circumstances should be
considered, or what is or is not a relevant
circumstance without
contravening the decision in
"The Pegasus"
that each
case must be decided on its own particular facts. The circumstances
are infinitely variable and all the circumstances
must be considered
without preconceived rules in order to answer the question whether
undue hardship would result.'
[27]
Section 27 of the English Arbitration Act, 1950, has been replaced by
s 12 of the English Arbitration Act, 1996, which section,
as
explained by Steel, J in
Thyssen Inc v Calypso Shipping
Corporation S.A.
[2000] 2 Lloyd's Rep. 243 para 24, 'was
introduced with a view to restricting the circumstances in which time
might be extended
as compared with the scope of s. 27 of the
Arbitration Act, 1950'. Section 12 of the English Arbitration Act,
1996, reads as follows:
'(1) Where an arbitration
agreement to refer future disputes through arbitration provides that
a claim shall.be barred, or the claimant's
right extinguished, unless
the claimant takes within a time fixed by the agreement some step-
(a) to begin
arbitral proceedings, or
(b)
. . .'
the court may by order
extend the time for taking the step.
(2) …
(3) The court shall make
an order only if satisfied-
(a) the
circumstances are such as were outside the reasonable contemplation
of the parties when they agreed the provision
in question, and that
it would be just to extend the time; or
(b) the conduct of
one party makes it unjust to hold the other party to the terms of the
provision in question.'
[28]
Subsection 12(3)(a) of the 1996 English Arbitration Act, as the Court
of Appeal explained in
Harbour and General Works Ltd v Environment
Agency
[2000] 1 Lloyd's Rep. 65 at 81, -
'. . . is concerned with
party autonomy. Its aim seems to me to be to allow the Court to
consider an extension in relation to circumstances
where the parties
would not reasonably have contemplated them as being ones where the
time bar would apply, or to put it the other
way round the section is
concerned not to allow the court to interfere with a contractual
bargain unless the circumstances are
such that if they had been drawn
to the attention of the parties when they agreed to the provision,
the parties would at the very
least have contemplated that the time
bar might not apply; it then being for the court finally to rule
whether justice required
an extension of time to be given.'
And
so far as s 12(3)(b) is concerned, it was held in
Thyssen
para
25, that that subsection is concerned with the question whether the
claimant can attribute its failure to comply with the time-bar
clause
to conduct on the part of the respondent.
[29]
Evidently s 12 is a very different provision from the previous s 27
of the English Arbitration Act, 1950, as well as s 8 of
our
Arbitration Act. Notably, our legislature has not adopted a provision
similar to the more restrictive one now applicable in
English law;
also restricting the circumstances in which time might be extended as
compared to the scope of s 8 of the Arbitration
Act. South African
courts are not required (as English courts now are) only to have
regard to the two circumstances identified
ins 12(3) of the English
Arbitration Act, 1996.
[30]
Having regard to the particular facts of this case and the relevant
circumstances that should be considered, I am for the reasons
that
follow of the view that it has been established that 'undue hardship'
would otherwise be caused if the time-bar is not extended
as
contemplated in s 8 of the Arbitration Act, and that this court's
discretion under that section should be exercised to extend
the
time-bar. The hardship on SCH and the company would otherwise be
greater than the circumstances of this case warrant.
[31]
But for the time-bar the claim of SCH and the company is good.
Although a court should not attempt to evaluate the merits of
the
dispute unless they are manifest, the fact that a claim is almost
certain to succeed, or is admitted, is a relevant factor
to be taken
into account. (See
Tradax lntemacional S.A. v Cen-ahogullari T.A.S
(The "M. Eregli”)
[1981] 2 Lloyd's Rep. 169 (QB) at
175; Mustill & Boyd
The Law and Practice of Commercial
Arbitration in England
2
nd
Ed (1989) at 214.) In
M.
Eregli,
the facts that the defendant had no answer to a
straightforward claim for the recovery of a debt and had the benefit
of the monies
for five years, weighed heavily on the Queen's Bench in
finding that undue hardship would result if that claim was
time-barred.
[32]
Here, the loss that SCH and the company seek to be compensated for by
SH, BHP and ASCA under the indemnity in clause 24.1.5
of the
agreement, has been established and in fact been settled with SARS
and paid. But for the time-bar the claim against SH,
BHP and ASAC is
not in dispute: SH admitted .that it incorrectly calculated the
company's taxable income for the 2005 year of assessment
by failing
to add back to its taxable income a disallowable impairment on
investments amounting to R53 million; the appeal panel
has upheld the
arbitrator at first instance's award that the claim in terms of the
indemnity in clause 24.1.5 is good, but for
being time-barred. SH has
had the benefit of not having paid the income tax it should have
paid.
[33]
There is also no fault on the part of SCH and the company that
resulted in the time-bar expiring. They even satisfy the stringent
pre-Pegasus
era requirement that a claimant must not be at
fault before undue hardship can be found to exist. They failed to
bring their claim
in circumstances where they did not know of, or
could not reasonably have discovered, the existence of their claim
before the time-bar
had expired. It was only during the course of the
tax audit by SARS, from August 2011 to July 2012, that SARS raised
the query
regarding the disallowable impairment which gave any
indication of a possible under-declaration of the company's taxable
income
for the 2005 year of assessment, and so a possibility of an
additional tax exposure that might form the subject-matter of an
indemnity
claim under clause 24.1.5 of the agreement. By then the
time-bar had already expired, on 1 June 2011. The additional
assessment
that was raised by SARS which reflected the additional
income tax liability was much later still, on 27 September 2012, and
well
after the expiry of the time-bar.
[34]
The time-bar lapsed through circumstances beyond the control of SCH
and the company. This is a weighty factor; a circumstance
which Lord
Salmon in
Pegasus
found to be obviously one where the power of
the court to extend the time-bar will normally be exercised
(supra
para 22). Self-evidently, where it was impossible for SCH and the
company to know that SH had understated the company's taxable income
for the 2005 year of assessment, before the time-bar had lapsed on 1
June 2011, it must follow that it was impossible for them
to initiate
arbitration proceedings in relation to a claim they did not even know
existed.
[35]
SH, BHP and ASAC were at fault in submitting the company's 2005 tax
return late and in under-declaring its taxable income for
that year
of assessment to SARS. The degree to which a respondent is at fault
or misled the claimant is a weighty factor. (See
Pegasus
at
943;
Jocelyne
at 127.) As I have mentioned, the consideration
whether the claimant can attribute its failure to comply with the
time-bar clause
to conduct on the part of the respondent, is·now
one of the only two circumstances in which a court in England may
extend
the period of a time-bar clause in terms of the present more
restrictive s 12 of the English Arbitration Act, 1996.
[36]
It is common cause, as I have mentioned, that SH, BHP and ASAC, and
especially SH, were responsible for preparing and submitting
the
company's income tax return for the 2005 year of assessment. First,
it was SH that failed to properly calculate the company's
taxable
income for the 2005 year of assessment. Because SH incorrectly
calculated the company's taxable income and submitted an
incorrect
return on its behalf, its correct tax position in respect of the 2005
year of assessment was only established once SARS
had completed its
tax audit in July 2012, and raised the additional assessment on 27
September 2012, well after the lapse of the
time-bar on 1 June 2011.
[37]
Second, SH was excessively late in submitting the company's income
tax return for the 2005 year of assessment. It should, in
terms of
the applicable tax legislation, have been submitted by no later than
the end of February 2006, but was only submitted
on 30 June 2008, two
years and four months late. Although to the parties' knowledge there
had been a historical pattern of the
company's income tax returns
being rendered late (and which was no doubt factored into the length
of the time-bar agreed upon),
those delays were twelve months after
the financial year-end and not anything close to twenty-eight months.
SH, based on the historical
pattern, should have submitted the
company's 2005 tax return by no later than the end of February 2007.
SH, BHP and ASAC, therefore,
are partly at fault in the claim of SCH
and the company remaining undiscovered for as long as it was, taking
into account the institutional
delays on the part of SARS.
[38]
In
ETS Soules
&
Cie v lntemational Trade Development
Co.
Ltd.
[1979] 2 Lloyds Rep. 122 at 138, the Queen's
Bench, in granting the extension, found that the claimants could not
be faulted for
not knowing of the claim timeously as they expected
the defendants to properly carry out their contractual obligations.
It was
only because of the failure of the defendants to carry out
their contractual obligations that the claimants found out about the
claim too late, after expiry of the time-bar period. The same
consideration, in my view, applies in the present matter: apart from
the institutional delays on the part of SARS, it was the failure of
SH to properly account for and declare the company's taxable
income
for the 2005 year of assessment and then to timeously render its
income tax return that resulted in SCH and the company
only
discovering any potential claim under the indemnity after the expiry
of the time bar period.
[39]
SH, by its own conduct and fault, has benefitted in not having to pay
a substantial amount in income tax that related to the
manganese
business it retained. Instead, the company bore that financial
burden. This, in my view, echoes the factors that weighed
on the
Queen's Bench in
M Eregli
in granting the extension,
especially where the claimant's claim against the defendant was
straight-forward (a
fortiori
in the present matter where the
claim of SCH and the company is good, but for the time-bar) and the
defendant had had the benefit
of the monies for five years.
[40]
As to the nature of the claim and amount at stake, the company had to
settle a liability to SARS, which falls within the ambit,
so it was
decided in the arbitration proceedings, of the indemnity in clause
24.1.5 of the agreement. There is a substantial sum
at stake: unless
the period of the time-bar clause is extended, the claim of SCH and
the company for some R52 million will be forfeit.
That the amount at
stake is an important factor is recognised by both English and South
African authorities:
Pegasus
at 943;
Jocelyne
at 129;
Asia Konstruksie
at 473; and
Chevron
para 64.
[41]
SH, BHP and ASAC are not prejudiced by the delay in instituting the
arbitration proceedings. The lack of prejudice on the part
of a
respondent in an application to extend the time limit in a time-bar
provision is a weighty factor in deciding whether the
hardship is
undue or excessive as contemplated in s 27 of the English Arbitration
Act, 1950, and ins 8 of our Arbitration Act;
in the words of Brandon
LJ in
Aspen Trader
(at 280), 'a factor of utmost importance'.
Referring to
Pegasus,
Brandon LJ (at 279) said that that-
'... Court did not go so
far as to say that, if there was no prejudice to the respondent, and
however wrong and irresponsible the
claimants had been with regard to
delay, that in every such case an extension of time should be
granted; but they did say - the
majority of the Court - that the
question of prejudice of the respondents to the application was a
matter of great importance.
And
in
Al Faiha
at 104, Parker J said that prejudice-
'... is one of the
factors and a most important one to be weighed up when the Court is
considering whether a refusal of the application
would cause
excessive hardship to the plaintiff. Hardship may be excessive if no
harm would result to the defendant, but plainly
not excessive if the
hardship to the defendant would be substantial.'
(These
judgments are but a few examples of the many decided cases in English
case law dealing with the importance that is attached
to the absence
of substantial prejudice to a defendant by the delay in instituting
the arbitration proceedings.)
[42]
In their founding affidavit, SCH and the company expressly assert
that SH, BHP and ASAC have suffered no prejudice. They state:
'119 The prejudice that
the applicants will suffer in the event that the period is not
extended, namely the unenforceability of
their claim exceeding R52.3
million, far exceeds any prejudice the respondents will suffer if the
relief is granted.
120 It is difficult to
conceive of any legally cognisable prejudice that the respondents
will suffer if the period is extended.
There was no complaint by the
respondents that any delay in the making of the claim prejudiced them
in the conduct of the arbitration.
The applicants' evidence went
uncontested, without any complaint by the respondents that they could
not lead any countervailing
evidence because of the passage of time.
This is because the dispute could be and was decided on common cause
facts. The result
of an extension sought in this application will
simply be the determination of the claim that would otherwise be
time-barred.'
[43]
In answer, SH, BHP and ASAC are unable to assert prejudice, other
than to insist on their contractual bargain. They start off
with a
bare denial of the averments in paras 119 and 120 of the founding
affidavit, and continue to state:
'88.2 The only
"prejudice" at issue in this application is liability in
respect of the SARS indebtedness. For the reasons
set out above, the
applicants' claim in respect of that indebtedness is time-barred in
terms of the Agreement, and that was a clearly
foreseeable
consequence at the time the applicants agreed to conclude the
Agreement. There is accordingly no reason why the applicants
should
be relieved of the consequences of their agreement by way of the
relief sought in the present application.'
[44]
Prejudice to a respondent, of course, must be established with
evidence and not mere speculation. As was said by Parker Jin
Al
Faiha
(at 104),
'... bare possibilities
are not sufficient in my judgment to amount to a material
circumstance. If prejudice is to be weighed in
the scales it must in
almost all cases be established by evidence that there is a real
likelihood of that it will occur and that
it will be significant in
extent. I say in almost all cases for there are inevitably
exceptions; it may be for instance that the
matters in issue turn
entirely upon oral evidence and that the delay is so long that it is
inevitable that there will have been
a substantial fading of
memories'.
[45]
The relevant kind of prejudice includes the inability of a defendant
to properly conduct its case in an arbitration (see
Aspen Trader
at 281), because witnesses are no longer around, evidence had
gone missing, or, as was mentioned in
Al Faiha,
where the
delay had been so long that it is inevitable that there will have
been a substantial fading of memories. Nothing of the
sort is even
suggested
in casu.
The fact that a claim that would otherwise
be time-barred is no longer time-barred in the event the court grants
an extension is
not the kind of prejudice of which the court takes
legal cognisance. (See
Chevron
paras 82-83;
Aspen Trader
at
281-2.)
[46]
SH, BHP and ASAC argue that SCH and the company delayed unduly in
bringing this application for relief under s 8 of the Arbitration
Act, and the court's discretionary power to extend a time-bar
provision should in such event not be exercised. They argue that
insofar as SCH and the company wished to seek relief in terms of s 8,
it was incumbent upon them to institute such proceedings
without
delay as soon as it was evident to them that SH, BHP and ASAC relied
on the time-bar clause as a defence to their claim
under clause
24.1.5, which reliance they pertinently raised in their statement of
defence, dated 3 February 2014, and in any event
before insisting on
a determination of the merits of their claims in the arbitration
proceedings. Instead, SCH and the company
only launched this
application after the appeal panel had afforded them an opportunity
to do so.
[47]
In support of this argument they refer to the following summary of
English law in respect of applications under s 27 of the
English
Arbitration Act, 1950, as stated by Mustill & Boyd
The Law and
Practice of Commercial Arbitration in England
2nd Ed. at 214-215:
'The fact that the remedy
is discretionary has one important consequence, namely that the Court
will expect a claimant who wishes
to apply for an extension of time,
to bring his application before the Court with the minimum of delay.
Accordingly, if the defendant
informs the claimant that he is taking
a time-bar point, the claimant should not linger over attempts to
persuade the defendant
to change his mi11d, but should at once issue
his summons under section 27.
For the same reason, if
the claimant disputes that the claimant is time-barred he should
start proceedings for a declaration that
it is not, issue his summons
under section 27 and have both matters brought on for hearing at the
same time, in case his case for
a declaration fails.' (Footnotes
omitted.)
[48]
Reliance is also placed on
Irish Agricultural Wholesale Society
Ltd. V. Partenreederei: M.S. "Eurotrader”
[1987] 1
Lloyd's Rep. 418 (CA) at 423, where Kerr, L.J. said:
'(W]hat is quite clear on
the authorities cited . . . is that as soon as a time point is taken,
alarm bells should be heard to ring
for those on the side of the
cargo, and they must then act accordingly. If they still fail to do
so, then I see nothing wrong with
the Judge's conclusion that the
delay becomes "culpable to a high degree", in the sense
that it is likely to have very
serious consequences in the context of
s. 27. It does not follow, of course, that further delay thereafter
will always tip the
balance, because everything must be looked at in
the round. But it is bound to be regarded a point of great
importance.'
[49]
The failure by a claimant to bring its application in terms of s 8 of
the Arbitration Act for an extension of the time-bar
period before
the court with the minimum delay once the defendant had raised its
reliance on a time-bar provision, is thus a factor,
and one of great
importance, that the court will take into account in the exercise of
its discretionary power whether or not to
extend the time-bar period
in a time-bar provision. I have referred to the presently relevant
parts of the pleadings in the arbitration
proceedings earlier on in
this judgment: SH, BHP and ASAC pertinently raised their reliance on
the time-bar clause in their statement
of defence. The response of
SCH and the company was to plead in their replication that the
enforcement of the time-bar provisions
would be contrary to public
policy, alternatively, that the time-bar clause falls within the
ambit of s 8 of the Arbitration Act
and that the arbitration should
be stayed to enable them to apply to court for an extension of the
time period if their claim would
otherwise be precluded in terms of
the time-bar clause. The rejoinder of SH, BHP and ASAC is a mere
denial of these allegations,
without any substantive elaboration.
They did not admit that s 8 applies and plead that SCH and the
company must first apply to
court for such relief.
[50]
The reason for the delay in launching this application is readily
apparent from the history of the litigation. It seems to
me that the
reasoning on the side of SCH and the company was that it would be
prudent for them first to pursue the arbitration
proceedings to
finality, as the resolution of the time-bar point might have been
rendered moot as a result. For example, if their
claims based on the
other indemnity clauses in the agreement were sustainable, the
time-bar clause may not have find any application,
and, if it did
find application because their claim resorts under the indemnity
provided in clause 24.1.5, as the arbitrator at
first instance and
ultimately also the appeal panel found, whether it is enforceable or
not on public policy considerations. However,
what is clear on the
authorities is that SCH and the company should have launched this
application for relief under s 8 of the
Arbitration Act as soon as it
was evident to them that SH, BHP and ASAC relied on the time-bar
clause as a defence to their claim
under clause 24.1.5 of the
agreement.
[51]
As I have mentioned, no grounds of legally cognizable prejudice that
SH, BHP and ASAC have suffered as a result of the delay
in initiating
the arbitration proceedings have been advanced. There is no
suggestion in the affidavits that, because of the delay,
they were
unable to properly conduct their case in the arbitration proceedings
or in this application. The reason for the delay
and the lack of
prejudice on the part of SH, BHP and ASAC are important points
bearing upon the consequence that should be attached
to the delay in
launching this application in the exercise of the discretionary power
whether or not to extend the time-bar. In
my view, the delay
per
se
should in all the circumstances of this case not 'tip the
balance' or be dispositive of this application.
[52]
SH, BHP and ASAC argue that the importance accorded to contractual
autonomy
(pacta sunt servanda)
in our law requires that that
consideration be accorded much weight in considering the question
whether the court's discretionary
power in terms of s 8 of the
Arbitration Act should or should not be exercised. They argue that a
time-bar provision that stipulates
a time period within which a claim
must be brought
after the effective date of the agreement
(as
opposed to one that stipulates a specific period within which a claim
must be brought
after the cause of action has arisen)
should
be enforced. Relying on a dictum in
A/S Det Dansk-Franske
Dampskibsselskab v Compagnie Financiere D'lnvestissements
Transatlantiques S.A. (Compafina) ("The Himmerland”)
[1965] 2 Lloyd's Rep. 353 (QB) at 360, they argue that the
purpose of the time-bar clause
in casu
is self-evident: It
ensures a definite end date for the bringing of any claims (whether
or not such claim might have arisen by that
date), and thus affords
both parties commercial certainty and finality in respect of their
liabilities under the agreement.
[53]
It is thus evident from the wording of the time-bar clause, they
argue, that the parties appreciated and contemplated, at the
time
they concluded the agreement, that the time-bar clause would have the
effect of precluding any income tax related claims after
the expiry
of a six-year period stipulated therein, even if such claims had not
arisen and were therefore not capable of being
instituted within that
period of time. They argue that the fact that SCH and the company
agreed to the time-bar, notwithstanding
that it was clearly
foreseeable at the time of concluding the agreement that the time-bar
clause might have the effect of barring
any income tax related claim
for the company's 2005 tax year, indicates that SCH and the company
must have been aware of and willing
to assume that risk at the time,
as part of the commercial bargain reached with SH, BHP and ASAC.
This, they further argue, is
especially so given that the agreement
was concluded between large and highly sophisticated commercial
entities, all of which had
the benefit of expert legal advice in the
drafting and conclusion of the agreement. In these circumstances,
they argue, no undue
'hardship' is caused to SCH and the company by
holding them to this commercial bargain, which the parties concluded
for wholly
legitimate commercial reasons and with clear foresight of
its potential consequences.
[54]
SH, BHP and ASAC rely on the evidence of Mr Erasmus, an employee of
the company at the time when the agreement was concluded,
about the
historical pattern of delay in the filing of income tax returns and
issuance of income tax assessments in respect of
the company, and as
a result of which he expresses an opinion that it would have been
'highly optimistic' to expect that any claim
in relation to the 2005
tax year would arise within the six year time-bar and that it was
clear that unforeseen income tax liabilities
might only be discovered
much later. Based on his evidence the appeal panel found that the
'impact of the time-bar in this case
was entirely foreseeable' and it
'was an outcome the parties must have foreseen when they agreed on
the time-bar'. SH, BHP and
ASAC argue that although the consideration
whether the circumstances in which an arbitral time-bar clause is
sought to be enforced
'were outside the reasonable contemplation of
the parties when they agreed the provision in question' is one of the
only two circumstances
in which a court may extend the time-bar
period in terms of s 12 of the English Arbitration Act, 1996, and the
assessment under
s 8 of the Arbitration Act not similarly limited, it
is a dispositive factor on the facts of this case, especially in the
light
of the value accorded to contractual autonomy in South Africa.
[55]
It is undoubtedly so that great importance is attached to contractual
autonomy in South African law. The importance of contractual
autonomy
was repeatedly confirmed by our courts in various judgments. As was
said by Ngcobo J in
Barkhuizen v Napier2007
(5) SA 323 (CC)
para 57:
'Self-autonomy, or the
ability to regulate one's own affairs, even to one's own detriment,
is the very essence of freedom and a
vital part of dignity. The
extent to which the contract was freely and voluntarily concluded is
clearly a vital factor as it will
determine the weight that should be
afforded to the values of freedom and dignity.'
(Also
see, for example,
Brisley v Drotsky
2002 (4) SA 1
(SCA) paras
51-52;
Mohamed's Leisure Holdings (Pty) Ltd v Southern Sun Hotel
Interests (Pty) Ltd
2018
(2)
SA 314
(SCA) paras 21-27;
AB and another v Pridwin Preparatory
School and others
2019 (1) SA 327
(SCA).)
[56]
The argument that party autonomy
(pacta sunt servanda)
requires
the enforcement of one species of time-bar clause (one that
stipulates a time period within which a claim must be brought
after
the effective date of the agreement) but not the other (one that
stipulates a specific period within which a claim must be
brought
after the cause of action has arisen, which time-bar clause may, at
common law, on public policy grounds not be enforced,
e.g. on the
basis that non-compliance with the time bar provision was caused
by factors beyond a party's control, in which
event, as was held by
the Constitutional Court in
Barkhuizen
para 73, 'it is
inconceivable that a court would hold the claimant to such clause'),
is not sustainable in logic and principle.
If party autonomy is to
reign supreme, then both species of time-bar clauses should in all
circumstances be enforced. Moreover,
the argument loses sight of the
fact that there are indeed common law inroads on contractual
autonomy, and that, by enacting s
8 of the Arbitration Act, the
Legislature has made a further inroad on contractual autonomy by
allowing a party to escape the consequences
of a consensual time-bar
provision in a contract if the court is of the opinion that in the
circumstances of the case undue hardship
would be caused if the
time-bar provision is enforced.
[57]
The argument that the parties' contractual autonomy should prevail
and that SCH and the company strictly be kept to the contractual
bargain, may be consistent with the philosophy under the news 12 of
the English Arbitration Act, 1996, but it is out of sync with
the
more benevolent approach to be applied under s 27 of the English
Arbitration Act, 1950, and also under our substantially identically
worded s 8 of the Arbitration Act. Whilst the position in English law
changed with the introduction of the more restrictive s 12
of the
1996 Arbitration Act, which placed a premium on the contracting
parties' autonomy, our Legislature has not followed suit.
[58]
It is also indeed so that the purpose of a time-bar provision such as
clause 23.6.3 of the agreement is self-evident: It affords
both
parties commercial certainty and finality in respect of their
liabilities under the agreement. As was stated by Mocatta J
in the
dictum
in
Himmerland
on which reliance is placed, a
clause like clause 23.6.3-
, ... is mutual in its
operation and may very well be accepted by businessman because of the
advantages it affords in (a) providing
some limit to the
uncertainties and expense of arbitration and litigation and (b)
facilitating the obtaining of material evidence.'
However,
in the very next sentence following the above-quoted passage, Mocatta
J adds this:
'Cases of undue hardship
can be left to be dealt with under Sec. 27 of the Arbitration Act.'
[59]
SH, BHP and ASAC will unjustifiably reap the windfall of not having
to bear the consequences of having und.er-stated the company's
taxable income for the 2005 year of assessment. They seek to rely
upon the historical pattern of the late rendering of income tax
returns to justify their assertion that it was entirely foreseeable
that this claim would be time-barred and that SCH and the company,
therefore, should not be granted an extension. But the historical
delays were limited to twelve months. An inference that it was
foreseeable, at the time when the parties entered into the agreement,
that SH would delay twenty-eight months in submitting the
company's
tax return for the 2005 year of assessment, can, therefore, on the
facts presented in this application, not be drawn,
nor can an
inference be drawn that it was at the time foreseeable that SH would
under-declare the company's taxable income for
the 2005 year of
assessment to SARS.
[60]
In concluding an agreement that contains a time-bar provision, such
as the time-bar clause
in casu,
commercial people must be
presumed to appreciate and contemplate that such clause would have
the effect that unforeseen liabilities,
in this instance unforeseen
income tax related liabilities, might only arise after the expiry of
the period stipulated in the time-bar
provision. They must also be
presumed, however, to read such an agreement in the light of s 8 of
the Arbitration Act. Equally apposite
in this instance is the
following
dictum
by Lord Denning in
Pegasus
at 943:
'It is said rightly that
commercial men enter into contracts such as the present on the basis
of the arbitration clause. They must
be presumed, however, to read it
in the light of s 27. I have no doubt at all that if two ordinary
business men entering into this
contract had been asked if it would
cause undue hardship to refuse to extend the time should
circumstances such as the present
occur, they would both
unhesitatingly have answered "Yes". I am not prepared to
hold that the court's powers under the
section should be very rarely
exercised. Still less that they should be exercised freely. The
question whether those powers should
or should not be exercised must
turn exclusively on the particular facts of each case in which the
question arises.'
[61]
For the reasons that I have given, I too have no doubt that if
ordinary business people entering into the agreement
in casu
-
although they may have foreseen that unforeseen income tax related
liabilities might only arise after the expiry of the six-year
period
stipulated in time-bar clause, and thus be barred - had been asked if
it would cause 'undue hardship' to refuse to extend
the time-bar
should circumstances such as the present occur, they would both
unhesitatingly have answered 'Yes'.
[62]
In the result the following order is made:
(a)The time period
stipulated in clause 23.6.3 of the Sale of Shares Agreement, which is
annexed marked 'FA2' to the founding affidavit,
is extended until
after the applicants' claim in the arbitration proceedings was
initiated on or about 20 August 2013.
(b)The respondents are to
pay the costs of the application, jointly and severally, the one
paying the others to be absolved, including
those of two counsel.
_________________
P.A.
MEYER
JUDGE
OF THE HIGH COURT
Date
of hearing:
9 May
2019
Date
of judgment:
24 October 2019
Applicants'
counsel:
Adv A. Subel SC (assisted by Adv BM Gilbert)
Instructed
by:
Brian Kahn Inc, Craighall Park, Johannesburg
Respondents'
counsel: Adv C.D.A Loxton SC
(assisted by Adv J. Wilson)
Instructed
by:
Mervyn Taback Inc., Parktown, Johannesburg