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[2014] ZASCA 160
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Zhongji Development Construction Engineering Company Limited v Kamoto Copper Company Sarl (421/2013) [2014] ZASCA 160; 2015 (1) SA 345 (SCA); [2014] 4 All SA 617 (SCA) (1 October 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 421/2013
REPORTABLE
In
the matter between:
ZHONGJI
DEVELOPMENT CONSTRUCTION ENGINEERING COMPANY
LIMITED
....................................................................................................................................
Appellant
and
KAMOTO
COPPER COMPANY
SARL
..............................................................................
Respondent
Neutral
citation:
Zhongji Construction v
Kamoto Copper Company
(421/13)
[2014] ZASCA 160
(1 October 2014)
Coram:
Mpati
P, Willis and Mbha JJA and Mathopo and Gorven AJJA
Heard:
5 September 2014
Delivered:
1 October 2014
Summary:
Appeal -
jurisdiction – on appeal, held that the process of
arbitration should be respected – no basis for a declaratory
order
– appeal dismissed.
ORDER
On
appeal from:
South Gauteng High Court,
Johannesburg
(Myburgh AJ sitting as the court of first instance):
The appeal is
dismissed.
JUDGMENT
Willis
JA (Mpati P, Mbha JA and Mathopo AJA concurring):
[1]
This appeal is concerned with whether the high court (Myburgh AJ)
was correct in dismissing an application for a declaratory
order that
a particular dispute was ‘arbitrable’ and whether an
arbitration agreement applied in respect of certain
invoices that
form the subject matter of the dispute between the parties. The
appeal to this court is with the leave of the high
court.
[2]
The appellant, which was the applicant in the high court, is a
Chinese company known as Zhongji Development Construction Engineering
Company Limited (Zhongji Construction). The respondent is a Congolese
company, Kamoto Copper Company SARL (Kamoto). The parties
are
therefore both
peregrini
of the courts of South Africa.
[3]
In April 2007 Zhongji Construction had been invited by a South
African company, Bateman Minerals & Metals (Pty) Limited
(Bateman), acting on behalf of a Congolese company known as DRC
Copper and Cobalt Project SARL (the DCP), to tender for the supply
and construction of piling and civil works at the DCP’s mining
site near Kolwezi in the Democratic Republic of Congo (the
Congo).
Arising from this invitation, Zhongji Construction was awarded the
tender. As a result of the award of the tender Zhongji
Construction
and the DCP concluded a written agreement on 20 August 2008.
[4]
The parties have referred throughout the proceedings in both the high
court and this court to this agreement as ‘the main
agreement’.
For convenience, I shall do so as well. In terms of this agreement,
the ‘governing law’ thereof is
‘English law’.
The main agreement provides that, unless the parties otherwise agree,
disputes between them ‘shall
be finally settled under the Rules
for the Conduct of Arbitrations as published by the Association of
Arbitrators (Southern Africa)’
(the Arbitration Association).
This main agreement also provides that three arbitrators would be
appointed in any arbitration between
them, these arbitrators to be
chosen either by agreement between the parties or, failing such an
agreement, by the chairperson
of the Arbitration Association. The
arbitration clause in the main agreement moreover provides that the
arbitration shall be held
in Gauteng.
[5]
At all material times in its dealings with Zhongji Construction,
Bateman had been acting on behalf of the DCP. Prior to the
formal
conclusion of the main agreement Bateman had advised Zhongji
Construction in a series of letters, stretching from 12 May
2007 to
21 September 2007, that it would be awarded the tender and should
proceed accordingly. In November 2007 Bateman,
again acting on
behalf of the DCP, informed Zhongji Construction that, as a result of
‘merger talks’, Zhongji Construction
should suspend its
construction operations for about ‘three to six months’.
[6]
In the meantime, shipments from China to the Congo were already on
the high seas and could not be stopped. In consequence of
the
suspension of operations, representatives of Zhongji Construction and
the DCP met in Beijing on 26 and 27 November 2007 to
reach an
agreement that would ensure that Zhongji Construction would not be
compromised in respect of work already done and expenses
actually
incurred thus far.
[7]Arising
from the discussions which took place at the meeting in Beijing in
November 2007, an interim agreement was reached between
Zhongji
Construction and the DCP to tide things over until there was greater
certainty about the future of the piling and construction
project.
This interim agreement is reflected, at first, in an exchange of
correspondence at the end of November 2007 and the beginning
of
December 2007. The interim agreement was formalised on 30 January
2008. The parties have referred to this agreement as the ‘interim
agreement’. I shall do so as well. Concluded under stressful
conditions, the interim agreement had, quite understandably,
been
short on detail other than what were, in the minds of the parties,
the
essentialia
. Counsel for Zhongji Construction has referred
to the interim agreement as being ‘skeletal’. This is not
an inaccurate
description. It contains no clause dealing with any
dispute resolution mechanisms.
[8]
On 8 May 2008, Bateman gave notice to Zhongji Construction that the
piling and civil work should proceed and that the drilling
rigs
should be re-mobilised. With a view to this work being done, Bateman
supplied Zhongji Construction with geological data so
that it could
proceed with the piling, as well as the pile cape and the pile
layout. Bateman also gave Zhongji Construction drawings
for the civil
works, instructing Zhongji Construction to purchase the necessary
materials for construction and to mobilise the
necessary equipment
and personnel accordingly. Zhongji Construction began driving the
first test piles at the site during September
2008, completing all
test piles by 24 October 2008.
[9]
Similarly to its conduct on 8 May 2008, the DCP instructed Zhongji
Construction on 15 October 2008 not to proceed with the
procurement
or shipping of any cement or reinforcing steel and also informed it
that it should not mobilise any additional personnel
to site until
further notice. On 29 October 2008, the DCP instructed Zhongji
Construction to suspend progress of all works.
[10]
On 20 November 2008, Bateman on behalf of the DCP gave Zhongji
Construction a written instruction that all materials in transit
between China and the site near Kolwezi should be dealt with as
follows:
(a)
Cargo that was, at that time, in transit in Zambia, Zimbabwe or the
northern parts of South Africa should be delivered to and
held in
storage at Bridgeport, No1 Bridge Close, City Deep, Johannesburg; and
(b)
All other cargo, in transit either in or to South Africa, should be
delivered to and held in storage at Bridgeport, 151 South
Coast Road,
Rossburgh, Durban.
[11]
In this instruction of 20 November 2008, Bateman assured Zhongji
Construction that it would be reimbursed for all expenses
in relation
thereto, storage charges in South Africa to be levied at US$2.75 per
ton per week and US$210 per container per week.
Zhongji Construction
implemented the instruction, incurring transport and storage costs.
[12]
On 5 December 2008, Zhongji Construction was given due notice that
the construction work by it was no longer to continue.
As a result,
Zhongji Construction ceased operations and commenced with its
demobilisation on 2 January 2009. Zhongji Construction
did no further
construction work at the site near Kolwezi.
[13]
Arising from the interim agreement, Zhongji Construction submitted
payment certificates to Bateman as follows:
(a)
On 21 May 2008 in an amount of US$ 1 733 294.39 (relating, inter
alia, to the construction costs of the construction camp itself
as
well as the batch plants and approved lump sum costs). This was
approved by Bateman on 19 June 2008.
(b)
On 13 July 2008 in an amount of US$1 049 386.30 (relating, inter
alia, to the cost of building the cement stores, as well as
standing
time from 1 May 2008 to the end of June 2008). This was approved by
Bateman on 2 October 2008.
(c)
On 25 August 2008 in an amount of US$623 994.30 (relating, inter
alia, to standing time for July 2008). This was also approved
by
Bateman on 2 October 2008.
(d)
On 23 September 2008 in an amount of US$823 994.30 (relating, inter
alia, to standing time for August 2008 as well as a once-off
cost of
remobilising and servicing the drilling rigs). This was approved by
Bateman on 19 November 2008.
[14]
The DCP paid Zhongji Construction US$1 733 294.39 in respect of the
first of these invoices. Zhongji Construction has not been
paid in
respect of the remaining three invoices, arising from the interim
agreement, in respect of which there is a total of US$2
497 374.90
outstanding. Zhongji Construction claims this amount, together with
interest and costs, from Kamoto.
[15]
Moreover, Zhongji Construction also submitted an invoice in an amount
of US$7 938 780.98 for work performed in terms of the
main agreement
during September 2008. Bateman rejected this claim, indicating a
number of items that should be removed therefrom.
Zhongji
Construction then submitted a revised interim payment certificate for
US$5 027 380.99, which Bateman approved on 1 December
2008.
Zhongji Construction also submitted a claim for work performed in
terms of the main agreement for the period from 1
to 29 October 2008
in an amount of US$3 324 995.68. This claim remains
unpaid.
[16]
In the meanwhile, the DCP and Kamoto concluded a written agreement of
merger in Kinshasa in the Congo on 25 July 2009. The
language in
which this merger agreement was concluded is French. The merger was
authorized by a decree signed by the President
of the Congo on 27
April 2010. Translations into English of both the merger
agreement and the decree were annexed to Zhongji
Construction’s
replying affidavit. The accuracy of these translations is not in
dispute.
[17]
The English translation from the French of the relevant portion of
the merger agreement reads:
‘
Under
the terms hereof, DCP hereby contributes with the ordinary legal
guarantees and subject to the definitive fulfillment of the
conditions precedent hereafter set out under Clause 9, to KCC, which
accepts all of its goods, rights and obligations, assets and
liabilities on 31 December 2008, without exception or reserve, in
return for taking over its liabilities on the same date under
the
terms and conditions provided in this agreement in consideration of
these contributions, the shareholders of DCP shall be allotted,
in
exchange, new shares in KCC.
Therefore,
as a result of the merger:
-
The property of DCP shall vest in KCC in the state which it exists at
the time of realization of the merger, it shall include
all the
goods, rights and assets belonging to the Absorbed Company at that
time, without exception;
-
KCC shall become debtor to the creditors of DCP in place of these,
without this substitution implicating novation with respect
to them.’
‘
KCC’
in the agreement is Kamoto and the DCP is defined as the ‘Absorbed
Company’.
[18]
A turn of events then occurred. On 15 November 2010, Mr Williams of
Werksmans informed Zhongji Construction’s attorneys
that he
acted for the DCP, that the DCP had been dissolved and that, as a
result of the merger agreement, Zhongji Construction’s
claim
lay against Kamoto. Thereafter, further turns occurred. A
pre-arbitration meeting was held and there were exchanges
of
correspondence between the parties. Kamoto’s attorneys were,
all the while, careful to make it clear that they neither
consented
nor submitted to arbitration. Ultimately, Kamoto’s position
consolidated into one in which the following was its
standpoint:
(a)
The interim agreement was silent on dispute resolution procedures
and, therefore, any claims arising out of that agreement were
not
susceptible to arbitration;
(b)
Kamoto had not been a party to the dispute resolution procedures
provided for in the main agreement;
(c)
In any event, in the light of –
(i)
both parties being
peregrini
of South Africa;
(ii)
there having been no attachment to confirm or found jurisdiction;
(iii)
the contract having been concluded outside of South Africa; and
(iv)
the performance of the contract having been outside of South Africa
no
court in South Africa had jurisdiction to make any order as to
whether the dispute was subject to the arbitration clause in the
main
agreement.
[19]
On 24 November 2010 Kamoto’s attorneys, Werksmans, referred
Zhongji Construction, once again, to the merger agreement,
drawing
attention to the fact that it had the effect of dissolving DCP.
Werksmans did so by sending a letter to Zhongji Construction’s
then attorneys, Deneys Reitz. A copy of the Presidential decree
authorizing the merger was attached to the letter. In response
thereto, Deneys Reitz wrote to Werksmans advising that it would
proceed against Kamoto with the recovery of the debt allegedly
owed
to Zhongji Construction.
[20]
In addition to the claims mentioned above, Zhongji Construction has
asserted that it was entitled to payment of US$27 724 677.02
arising
from its being ‘out of pocket’ as a result of the
suspension and, ultimately, the termination of the piling
and
construction works in terms of the main agreement. Zhongji
Construction’s version of events is that the suspension and
termination of these works occurred in order to suit the DCP’s
convenience.
[21]
In July 2010 Zhongji Construction, acting through its erstwhile
attorneys, submitted a letter of demand to Kamoto in which
it claimed
payment of US$25 661 345.36. This demand included claims
that fell outside those that arose from the interim
agreement. In the
letter Zhongji Construction threatened that if this demand went
unsatisfied, it would ‘institute proceedings’.
Following
discussions between the two respective sets of attorneys, it was
agreed that the dispute would be referred to arbitration
and that an
agreement to this effect would be prepared for signature. Zhongji
Construction’s attorneys drew up an agreement
which it sent to
the attorneys for the other side for consideration. It has not been
signed.
[22]
On 22 December 2011, more than a year later, Werksmans wrote to
Bowman Gilfillan, the attorneys that were then acting for Zhongji
Construction, to advise that Kamoto was prepared to agree to the
submission of Zhongji Construction’s claims under the ‘main
contract’ (ie the main agreement) but that it would not agree
to ‘the submission to arbitration of any claims made
against
it, arising from the interim agreement.’
[23]
Relying on the arbitration clause in the main agreement, Zhongji
Construction has sought redress by way of arbitration. Originally,
when Zhongji Construction made application to the high court, it
sought relief in the following terms:
‘
1.
Declaring the dispute between the applicant and the respondent for
the payment in the sum of US$2 616 847.84 in respect of three
invoices issued under the interim agreement concluded between the
applicant and the DRC Copper and Cobalt Project SARL on 30 January
2008 to be arbitrable;
2.
Declaring that the arbitration agreement contained in the main
agreement concluded between the applicant and the DRC Copper and
Cobalt Project SARL on 20 August 2008 applies to the three invoices
annexed hereto marked ‘A’, ‘B’ and
‘C’,
issued under the interim agreement concluded between the applicant
and DRC Copper and Cobalt Project SARL on 30
January 2008.
3.
Costs of suit.
4.
Alternative relief.’
The
three invoices ‘A’, ‘B’ and ‘C’
to which reference was made in Zhongji Construction’s
notice of
motion are the three unpaid invoices referred to in paragraph 14
above.
[24]
Kamoto’s statement of its position in the answering affidavit
has been confusing. It appeared to Zhongji Construction,
the high
court and, until near the end of the argument, to several members of
this court that not only did Kamoto dispute both
its liability to
submit to arbitration under the provisions of the main agreement and
any liability under the interim agreement,
but also that Kamoto took
the position that even if the court found that it was bound by the
arbitral provisions of the main agreement,
the arbitrator could not
have jurisdiction even to consider the claims arising from the
interim agreement. The reason that was
given was that the arbitration
tribunal could not decide its own jurisdiction and the interim
agreement contained no reference
to dispute resolution procedures.
Furthermore, Kamoto appeared to contest its liability under the
interim agreement not only because
that agreement contained no
reference to dispute resolution procedures, but also because Kamoto
had not been a party to the interim
agreement which, it contended,
stood entirely separate and apart from the main agreement.
[25]
In its answering affidavit, Kamoto accepted that in terms of the
merger agreement, it ‘becomes the debtor to the
creditors of
DCP’ and that it ‘acquired all of DCP’s goods,
rights and obligations, assets and liabilities on
31 December 2008’.
It then goes on to contend that:
‘
The
dispute resolution regime agreed between those parties in the main
agreement was not agreed by the respondent and was not an
obligation
assumed by the respondent in terms of the merger agreement’.
Kamoto
thereafter adds that:
‘
The
respondent submits, therefore, that although it accepted all of DCP’s
“goods, rights and obligations, assets and
liabilities on 31
December 2008” in terms of the merger agreement, it did not
thereby agree to the submission to arbitration
of disputes relating
to “such goods, rights and obligations, assets and liabilities”
either under the main agreement
or the interim agreement.’
[26]
In its replying affidavit, Zhongji Construction says:
‘
[I]t
was the applicant’s understanding that the respondent had
submitted to arbitration the disputes under the main agreement,
and
that the only issue at the time of launching these proceedings was
whether the respondent had submitted to arbitration the
disputes
pertaining to the interim agreement’.
Zhongji
Construction’s confusion was understandable. This will have a
bearing on costs. After Kamoto had filed its answering
affidavit,
Zhongji Construction then amended its notice of motion to seek an
order as follows:
‘
1
Declaring that the respondent:
(a)
Has assumed the rights and obligations of DRC Copper and Cobalt
Project SARL under the main agreement concluded between the
applicant
and DRC Copper and Cobalt Project SARL on 20 August 2008;
(b)
Is bound by the arbitral regime catered for in clause 20 of the main
agreement in relation to disputes in connection with or
arising out
of the main agreement or the execution of the works thereunder as
envisaged by clause 20.4 of the main agreement:
2
Declaring the following disputes between the applicant and the
respondent to be arbitrable:
(a)
Payment in the sum of US$5 263 896.79 in respect of an invoice issued
under the main agreement (annexed hereto marked “A”);
(b)
Payment in the sum of US$3 324 995.68 in respect of work performed in
terms of the main agreement for the period 1 October 2008
to 29
October 2008 and in relation to which no interim payment certificate
was issued (Annexed hereto marked “B”);
(a)
Payment in the sum of US$25 369 421.06 in respect of the suspension
and thereafter the rumination of the main agreement (Annexed
hereto
marked ”C”);
(b)
Payment in the sum of US$2 616 847.84 in respect of three invoices
(Annexed hereto marked “E”, “F” and
”G”)
issued under the interim agreement concluded between the applicant
and the DRC Copper and Cobalt Project SARL
on 30 January 2008.
3
Costs of suit.
4
Alternative relief.’
[27]
Kamoto’s counsel, Mr Leech, submitted that the relief sought by
Zhongji Construction was without precedent – anywhere
in the
English-speaking world. That may be so, but his Kamoto’s stance
with respect to the referral of the disputed issues
to arbitration
has been singularly unforthcoming. It was only after Kamoto’s
counsel was confronted in this court with
the confusing and
contradictory statement of Kamoto’s position in the answering
affidavit, as well as the stance which appeared
to have been taken by
its attorneys in correspondence when the arbitration was first mooted
by Zhongji Construction, that Mr Leech
made concessions which made
Kamoto’s position comprehensible. I now understand Kamoto’s
position to be this: If this
court were to find that there was a
binding obligation, in terms of the main agreement, read together
with the merger agreement,
for Kamoto to submit to arbitration in
respect of Zhongji Construction’s claims arising from the main
agreement, the duly
appointed arbitration tribunal would then have
the power (some might describe this as the ‘jurisdiction’)
to decide
whether Kamoto was liable to Zhongji Construction for its
claims that arose from the interim agreement. In the meantime, Kamoto
persisted with its contentions referred to in paragraph 18 above. In
the light of the letter from Kamoto’s attorneys to Zhongji
Construction’s attorneys on 22 December 2011, to which
reference has been made in paragraph 22 above, this stance is not
only baffling but extraordinarily unusual.
[28]
The high court judge said:
‘
I
am accordingly of the view that the respondent’s objection with
regard to jurisdiction is well founded: disputes between
it and the
applicant concerning the effects of the merger are, at best for the
applicant, disputes which fall to be addressed by
the arbitrator;
they are not matters in respect of which this Court has any
jurisdiction absent an attachment.
I
think it appropriate to add that I have, in coming to this
conclusion, grappled with the fact that there does not appear to be
any genuine dispute with regard to the legal effect of the merger. I
was not however referred to any authority to support the proposition
that a court is entitled to have regard to the merits of a dispute in
determining whether or not it has jurisdiction; nor have
I been able
to find any.’
It
was on this basis that he found that the application had to be
dismissed.
The judge also found that, in any event, there was a dispute as to
whether or not the procedural prerequisites for the arbitration
had
been waived and on this basis, too, he could not find in favour of
Zhongji Construction.
[29]
The majority judgment in the Constitutional Court, delivered by
O’Regan ADCJ in
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews and another
[1]
makes it plain that our law of arbitration is not only consistent
with, but also in full harmony with, prevailing international
best
practice in the field. Since 1976, our country has been a party
to The New York Convention on the Recognition of Foreign
Arbitral
Awards 10 June 1958, widely known simply as ‘The New York
Convention’. The duty of our courts to support international
arbitration and to give effect, where they can, to international
arbitration agreements is bolstered by the Recognition and
Enforcement
of Foreign Arbitral Awards Act 40 of 1977.
[30]
In
Bank
Mellat v Helsinki Techniki S.A.
[2]
,
decided in the English Court of Appeal, Robert Goff LJ said:
‘
Many
important states are now parties to the New York Convention; and in
this country the Arbitration Act 1975 was enacted to give
effect to
the convention, to which this country is a party. Parties to
international arbitrations must nowadays frequently rely
upon the
convention for the purpose of enforcing awards; and when the award
contains (as it will, for example, where the arbitration
is conducted
in accordance with the I.C.C Rules) an order for costs, the
enforcement of the award will include an order for costs
comprised in
the award.
Parties
to an arbitration may well choose London as a convenient neutral
forum. There are now excellent, and rapidly developing,
services
available in London for the conduct of such arbitrations. The English
language used is frequently a language familiar
to both parties, and
often too the language of the contract: for that reason, too, London
may be a suitable forum. The services
of very experienced solicitors,
counsel, experts and arbitrators are readily available here. So
London may be chosen as a convenient
neutral forum; or it may be
nominated by a body such as the I.C.C.
The
holding of such an arbitration in London appears to me to be a far
cry from litigation where a foreign litigant comes to this
country to
sue an English resident in the English courts.’
[3]
Mutatis
mutandis,
one could substitute for ‘London’ in this
passage, a number of different centres in South Africa where the same
observations
would apply, with equal effect. The South African courts
not only have a legal but also a socio-economic and political duty to
encourage the selection of South Africa as a venue for international
arbitrations. International arbitration in South Africa will
not only
foster our comity among the nations of the world, as well as
international trade but also bring about the influx of foreign
spending to our country.
[31]
In
Fili
Shipping Co Ltd v Premium Nafta Products and Others [On appeal from
Fiona Trust and Holding Corporation and others v Primalov
and
others]
[4]
,
Lord Hoffmann, delivering the speech with which all their lordships
concurred, said:
‘
In
my opinion the construction of an arbitration clause should start
from the assumption that the parties, as rational businessmen,
are
inclined to have intended
any
dispute arising out of the relationship into which they have entered
or purported to enter to be decided by the same tribunal
.
The clause should be construed in accordance with this presumption
unless the language makes it clear that certain questions were
intended to be excluded from the arbitrator’s jurisdiction.’
[5]
(My emphasis.)
[32]
In
Fiona
Trust
[6]
(which the House of Lords upheld in
Fili
Shipping
),
decided in the English Court of Appeal, Longmore LJ, delivering the
court’s unanimous judgment, said:
‘
As
it seems to us any jurisdiction or arbitration clause in an
international commercial contract should be liberally construed.
The
words “arising out of” should cover “every dispute
except a dispute as to whether there was ever a contract
at all”.’
[7]
And
‘
One
of the reasons given in the cases for a liberal construction of an
arbitration clause is the presumption in favour of one-stop
arbitration. It is not to be expected that any commercial man would
knowingly create a system which required that the court should
first
decide whether the contract should be rectified or avoided or
rescinded (as the case might be) and then, if the contract
is held to
be valid, required the arbitrator to resolve the issues that have
arisen.’
[8]
And
‘
If
there is a contest about whether an arbitration agreement had come
into existence at all, the court would have a discretion as
to
whether to determine that issue itself but that will not be the case
where there is an overall contract which is said for some
reason to
be invalid, eg for illegality, misrepresentation or bribery, and the
arbitration is merely part of that overall contract.
In these
circumstances it is not necessary to explore further the various
options canvassed by Judge Humphrey Lloyd QC since we
do not consider
that the judge had the discretion which he thought he had.’
[9]
[33]
The respective definitions of ‘arbitration agreement’ and
‘arbitration proceedings’ in the Arbitration
Act confer
wide powers on an arbitrator. These definitions read as follows:
‘“
arbitration
agreement
”
means a written agreement providing for a reference to arbitration of
any existing dispute or any future dispute relating
to a matter
specified in the agreement, whether an arbitrator is named or
designated therein or not.’
[10]
And
‘“
arbitration
proceedings
”
means proceedings conducted by an arbitration tribunal for the
settlement by arbitration of a dispute which has been referred
to
arbitration in terms of an arbitration agreement.’
[11]
[34]
In terms of rule 12.1 of the sixth edition of the Rules of the
Arbitration Association:
‘
The
arbitrator may decide any dispute regarding the existence, validity,
or interpretation of the arbitration agreement and, unless
otherwise
provided therein, may rule on his own jurisdiction to act’.
[35]
Accordingly, once the arbitration tribunal has been duly appointed in
terms of the main agreement, the rules of the Arbitration
Association
would give the tribunal itself jurisdiction to decide the issues
which may be raised before it, including those which
have been raised
both in the high court and this court.
[36]
In the light of an arbitrator’s power to determine his or her
jurisdiction in an issue that arises from the referral
to arbitration
itself, there is, therefore, no reason why the dispute about whether
or not the claims arising from the appellant’s
performance in
terms of the interim agreement is indeed arbitrable should not be
decided by the arbitration tribunal prior to an
application to the
high court. In the event that the arbitration tribunal decides in
Zhongji Construction’s favour, Zhongji
may then apply, in terms
of s 31 of the Arbitration Act, for the award to be made an order of
court. Once that happens, the award
would be internationally
enforceable by reason of the New York Convention and treaties, too
numerous to mention, in terms of which
there is reciprocal
recognition, within the comity of nations, of orders of court made in
foreign countries.
[12]
[37]
In terms of s 19(1)
(a)
of the old Supreme Court Act 59 of
1959, which read the same as s 21(1) of the now prevailing
Superior
Courts Act 10 of 2013
, the high court ‘has jurisdiction…in
relation to all causes arising within, its area of jurisdiction and
all other
matters of which it may according to law take cognisance.’
Once the arbitration has commenced, the high court in Gauteng would
therefore have jurisdiction to exercise its powers in terms of the
Arbitration Act, by reason of the combination of the following:
(a)
the arbitration will be held in Gauteng (and therefore a cause will
have arisen within its area of jurisdiction); and
(b)
the New York Convention; and
(c)
the Recognition and Enforcement of Foreign Arbitral Awards Act; and
(d)
the Arbitration Act, which, inter alia, provides for making an
arbitration award an order of court; and
(e)
international treaties, to which South Africa is a party, which
enable the international enforcement of orders of the South
African
courts.
The
reason is that the coalescence of these factors not only permits the
making of an order by the court but also ensures its effectiveness.
As this court made clear in
Bid
Industrial Holdings (Pty) Ltd v Strang and another (Minister of
Justice and Constitutional Development, Third Party),
[13]
the effectiveness of its orders remains an important consideration
when a court is making a decision as to whether jurisdiction
is
present, even though, nowadays, a generally more relaxed approach is
taken on the issue.
[14]
[38]
The process of arbitration must therefore be respected. Zhongji
Construction’s application to the high court was accordingly
premature and perhaps unnecessary. In
Geldenhuys
and Neethling v Beuthin
[15]
Innes CJ said:
‘
Courts
of Law exist for the settlement of concrete controversies and actual
infringements of rights, not to pronounce upon abstract
questions, or
to advise upon differing contentions, however important. And I think
we shall do well to adhere to the principle
laid down by a long line
of South African decisions, namely that
a
declaratory order cannot be claimed merely because the rights of the
claimant have been disputed
,
but that such a claim must be founded upon an actual
infringement.’
[16]
(My
emphasis.)
Kamoto
came perilously close to infringing Zhongji Construction’s
right to arbitration under the main agreement. Nevertheless,
the
relief which Zhongji Construction sought in the high court related to
an abstract or ‘academic’ question of the
kind to which
Innes CJ referred.
[17]
The
application ought to have been dismissed for this reason alone.
The
arbitration must first be given the opportunity to have run its
course before the court considers any application relating thereto.
[39]
In all the circumstances of the matter, it is inappropriate to mulct
Zhongji in the costs of this appeal.
[40]
The following is the order of the court:
The
appeal is dismissed.
_______________________
N
P WILLIS
JUDGE
OF APPEAL
Gorven
AJA (Mpati P, Mbha JA and Mathopo AJA concurring):
[41]
I have had the benefit of reading the judgment of my colleague Willis
JA. I arrive at the same outcome of the appeal but do
so by a
different route. The crisp issue in this appeal was whether the court
below was entitled or obliged to grant the declaratory
relief sought
by the appellant (Zhongji). It held that it did not have jurisdiction
to grant the relief and, as a result, dismissed
the application with
costs. This appeal is with its leave.
[42]
The relief ultimately sought by Zhongji was an order:
‘
1
Declaring that the respondent:
(a) has assumed the
rights and obligations of DRC Copper and Cobalt project SARL under
the main agreement concluded between the
applicant and DRC per and
Cobalt Project SARL on 20 August 2008;
(b) is bound by the
arbitral regime catered for in clause 20 of the main agreement in
relation to disputes in connection with or
arising out of the main
agreement or the execution of the works thereunder as envisaged by
clause 20.4 of the main agreement.
2 Declaring the
following disputes between the applicant and the respondent to be
arbitrable:
(a) Payment in the
sum of US$5 263 896.79 in respect of an invoice issued
under the main agreement…
(b) Payment in the
sum of US$3 324 995.68 in respect of work performed in
terms of the main agreement for the period 1 October 2008
to 29 October 2008 and in relation to which no interim
payment certificate was issued…
(c) Payment in the
sum of US$25 369 421.06 in respect of the suspension and
thereafter the termination of the main agreement…;
and
(d) Payment in the
sum of US$2 616 847.84 in respect of three invoices…
issued under the interim agreement concluded
between the applicant
and the DRC Copper and Cobalt Project SARL on 30 January 2008.
3 Costs of suit.
4
Alternative relief.’
[43]
The following was common cause. Zhongji is a Chinese company and the
respondent (Kamoto) one based in the Democratic Republic
of the Congo
(the DRC). Two agreements were concluded outside of South Africa
between Zhongji and another DRC based company, DRC
Copper and Cobalt
Project SARL (DCP). The agreements were for the supply and
construction of certain piling and civil works at
a mining site in
the DRC. They were referred to throughout as the interim and main
agreements respectively. The interim agreement
was concluded on 30
January 2008 and the main agreement on 20 August 2008. DCP terminated
the main agreement by letter dated 5
December 2008.
[44]
The interim agreement contained no dispute resolution clause. The
main agreement contained an arbitration clause providing
for disputes
to be resolved by arbitration in Sandton, Gauteng. It further
provided that the arbitration would be governed by the
provisions of
the
Arbitration Act 42 of 1965
and would be subject to the Rules for
the Conduct of Arbitrations as published by the Association of
Arbitrators for Southern Africa
(the Rules).
[45]
Zhongji delivered four invoices to DCP arising from work done under
the interim agreement. One of these was paid and the other
three were
not. Zhongji also delivered two invoices relating to work done under
the main agreement. Neither was paid. It invoiced
DCP in respect of
the suspension and termination of the main agreement. This has not
been paid. The unpaid invoices were disputed
by DCP.
[46]
Negotiations ensued for the disputes to be referred to arbitration.
These reached an advanced stage without actual agreement.
On 15
November 2010, attorneys who had been negotiating on behalf of DCP
informed Zhongji’s attorneys that what was termed
a merger
agreement had been concluded in the DRC between DCP and Kamoto (the
merger agreement). They said that this had the effect
of dissolving
DCP with effect from 31 December 2008 and, having annexed a copy in
the original French and an English translation,
said that they
assumed that Zhongji would now pursue its claim against Kamoto, but
that Kamoto did not admit liability. When further
correspondence did
not result in an agreement on arbitration proceedings, the
application to the high court was launched. Its purpose,
as appears
from the relief sought, was to establish that Kamoto was obliged to
arbitrate disputes between Zhongji and DCP in Sandton
in terms of the
arbitration clause in the main agreement.
[47]
The defences raised by Kamoto can be summarised as follows. First,
the court had no jurisdiction over it. Secondly, Kamoto
was not bound
by the arbitral regime agreed between Zhongji and DCP in the main
agreement. Thirdly, if it was so bound, this arbitral
regime did not
apply to disputes under the interim agreement.
[48]
Both
parties were
peregrini
of South Africa. The interim, main and merger agreements were
concluded outside South Africa and all the work on the project took
place in the DRC. No attachment had been made to found jurisdiction.
There had been no submission to jurisdiction by Kamoto. These
were
the points advanced by Kamoto in contending that the court below had
no jurisdiction. Against that, it
was
common cause that the
lex
arbitri
comprised the Act, the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the New York convention)
and
the Recognition and Enforcement of Foreign Arbitral Awards Act.
[18]
Zhongji
sought to persuade the high court that it had jurisdiction to grant
the relief on the basis
that
‘the Court
a
quo
should have identified itself as the Court
having
jurisdiction
within the meaning of the
Arbitration Act; it
was the only Court, or
at least the best placed Court, to pronounce on the arbitration
agreement in terms of the
lex
arbitri
which constitutes the relevant jurisdictional
causa
.’
[19]
[49]
It was further submitted on behalf of Zhongji that if the court
declined to exercise jurisdiction, ‘then an essential
piece of
the infrastructure of international arbitration is missing’.
This would, in turn, lead to a decline in the number
of entities
being willing to select this country as a neutral international venue
for arbitrating disputes arising from their agreements.
A submission
made on behalf of Kamoto was that the invocation of this jurisdiction
would lead to the opposite result. It was submitted
that
‘[a]pplication of the concepts of
competence/competence
,
party autonomy and the consensual underpinning of arbitrations, as
well as the international trend to minimise court interference
in
international arbitrations militate against the court extending its
jurisdiction in the manner sought to be encouraged by [Zhongji]’.
[20]
[50]
When a party raises a challenge to the jurisdiction of a court, this
issue must necessarily be resolved before any other issues
in the
proceedings. The reason is simple. If the court has no jurisdiction,
it is precluded from dealing with the merits of the
matter brought to
it.
[21]
Both of the parties’
submissions focussed on the question of jurisdiction and both treated
this as the real issue in the
application.
But
what these submissions overlooked in my view is that an arbitration
clause embodies an agreement that is distinct from the terms
of the
agreement of which it forms a part. Sometimes the fact that it is
embodied in another agreement may affect its validity
because a
challenge to the validity of the agreement in which it is
incorporated is also a challenge to the validity of the arbitration
agreement.
[22]
In the absence
of such a challenge, however, the arbitration agreement must be given
effect in accordance with its terms. The terms
of this agreement
require that the parties submit disputes to arbitration in Sandton,
Gauteng. In other words, the arbitration
agreement fell to be
performed within the area of jurisdiction of the court below, because
the seat of the arbitration was within
that area of jurisdiction.
[51]
It was accepted by both Zhongji and Kamoto that, in an arbitration
subject to the
lex
arbitri
,
a court must have jurisdiction to deal with certain matters
concerning the arbitration at a certain stage. This is correct.
The
question then is to identify the court that will exercise that
jurisdiction. The obvious answer is that it is the court of the
seat
of the arbitration, in this case, the high court in Johannesburg.
The
jurisdiction of the court arises from the principle that the
arbitration clause is to be performed in Sandton, Gauteng by way
of
conducting an arbitration there. The court has jurisdiction in
relation to the arbitration clause in terms of
s 19(1)(
a
)
of the Supreme Court Act.
[23]
The real issue is whether it was entitled to grant the relief sought.
[52]
As mentioned, the Rules were imported as terms of the arbitration
clause. Rule 12 provides, in its relevant parts:
‘
12.1
The Arbitrator may decide any dispute regarding the existence,
validity or interpretation of the arbitration
agreement and, unless
otherwise provided therein, may rule on his own jurisdiction to act.
12.2
A party to the reference wishing to challenge the jurisdiction of the
arbitrator or who avers that
the arbitrator is exceeding his
jurisdiction shall raise the jurisdictional issue at the first
available opportunity, failing which
he shall be deemed to have
consented to the arbitrator’s jurisdiction.
12.3
Where the Arbitrator has made a jurisdictional ruling pursuant to
this rule otherwise than in an award,
a party who wishes to contest
that ruling in court may only do so after the award, in the absence
of exceptional circumstances.
12.4
For the purposes of this Rule an arbitration clause which forms part
of a contract shall be regarded
as an agreement independent of the
other terms of the contract. A decision by the Arbitrator that the
contract is null and void
shall not of itself result in invalidity of
the arbitration clause.’
[24]
[53]
This means that, on Zhongji’s own version, the very issues on
which it sought judicial pronouncement fell to be dealt
with by the
arbitration tribunal.
This
was because the rules place the question of the scope of the
arbitrator’s jurisdiction and whether any particular dispute
falls within that jurisdiction in the hands of the arbitrator. That
is entirely permissible.
[25]
If
the arbitration tribunal in due course makes an award concerning the
disputed invoices, it must needs make findings on the second
and
third defences raised by Kamoto in the application. In doing so, it
would give effect to the terms of the arbitration clause
relied on by
Zhongji.
[54]
If the high court were to have pronounced on these issues, it would
have acted contrary to the provisions of the arbitration
clause
by determining issues that are within the province of the arbitrator
in terms of the arbitration agreement
. A court is
not entitled to do that unless an order has been granted in terms of
s 3(2)(
b
)
of the Act that those particular disputes shall not be referred to
arbitration. No such order has been sought or granted.
[55]
This approach, and the underlying rationale for circumscribing the
powers of a court which has jurisdiction conferred by an
arbitration
agreement, shows appropriate deference for the autonomy of the
parties to decide on the forum which should resolve
their disputes.
The supreme irony of the application is that Zhongji, in ostensibly
seeking to enforce the arbitration clause,
in effect sought to have
the court act contrary to some of the terms of the agreement it
invoked.
[56]
This court has said that parties who refer matters to arbitration
‘implicitly, if not explicitly, (and subject to the
limited
power of the Supreme Court under
s 3(2)
of the
Arbitration Act),
abandon
the right to litigate in courts of law and accept that they
will be finally bound by the decision of the arbitrator.’
[26]
The Constitutional Court
[27]
dealt with the question whether s 34 of the Constitution applied
directly to arbitrations. In finding that it did not do so,
O’Regan
ADCJ said:
‘
The
decision to refer a dispute to private arbitration is a choice which,
as long as it is voluntarily made, should be respected
by the courts.
Parties are entitled to determine what
matters
are to be arbitrated, the identity of the arbitrator, the process to
be followed in the arbitration, whether there will
be an appeal to an
arbitral appeal body and other similar matters.
’
[28]
O’Regan
ADCJ went on to state pertinently that:
‘
Given
the approach not only in the United Kingdom (an open and democratic
society within the contemplation of s 39(2) of our Constitution),
but
also the international law approach as evinced in the New York
Convention (to which South Africa is a party) and the UNCITRAL
Model Law, it seems to me that the values of our Constitution will
not necessarily best be served by interpreting s 33(1) in a
manner
that enhances the power of courts to set aside private arbitration
awards. Indeed, the contrary seems to be the case. The
international
and comparative law considered in this judgment suggests that
courts should be careful not to undermine the
achievement of the
goals of private arbitration by enlarging their powers of
scrutiny imprudently. Section 33(1) provides
three grounds for
setting aside an arbitration award: misconduct by an arbitrator;
gross irregularity in the conduct of the proceedings;
and the fact
that an award has been improperly obtained. In my view, and in the
light of the reasoning in the previous paragraphs,
the Constitution
would require a court to construe these grounds reasonably strictly
in relation to private arbitration.’
[29]
It
seems to me that the note of caution about enlarging the powers of
courts in matters concerning arbitrations, although made in
relation
to s 33(1) of the Act, applies with equal force to powers of
courts in dealing with arbitrations in general.
[57]
The need to respect the provisions of arbitration agreements was
underscored by Harms JA in
Telcordia
Technologies Inc v Telkom SA Ltd
[30]
when he decried the approach of the high court in setting aside an
arbitration award, saying that, in doing so, the court had -
‘
disregarded
the principle of party autonomy in arbitration proceedings and failed
to give due deference to an arbitral award, something
our courts have
consistently done since the early part of the 19th Century. This
approach is not peculiar to us; it is indeed part
of a worldwide
tradition. Canadian law, for instance, “dictates a high degree
of deference for decisions . . . for awards
of consensual arbitration
tribunals in particular.” And the “concerns of
international comity, respect for the capacities
of foreign and
transnational tribunals, and sensitivity to the need of the
international commercial system for predictability in
the resolution
of disputes” have given rise in other jurisdictions to the
adoption of “a standard
which
seeks to preserve the autonomy of the forum selected by the parties
and to minimise judicial intervention when reviewing international
commercial arbitral awards”.’
[31]
[58]
In the present matter, the forum selected by Zhongji and DCP is that
of a private arbitration. Zhongji cannot be prejudiced
if the
arbitration tribunal gives effect to the arbitration clause and rules
on the issues which it sought to have resolved by
the high court. If
the tribunal finds for Zhongji on the second and third defences
raised in the application and makes an award
in its favour, it can
apply to have the award made an order of court.
[32]
This order then becomes enforceable under the New York convention. If
the tribunal rules against it, it has chosen this forum.
Kamoto is
entitled to raise a question of the jurisdiction of the tribunal to
deal with the matter as well as the second and third
defences in
resisting an award being made by the Tribunal. Section 33 of the Act
entitles a party to apply to set aside an award
where an arbitration
tribunal has exceeded its powers. It has been held that if ‘an
arbitrator exceeds his powers by making
a determination outside the
terms of the submission, that would be a case falling under
s 33(1)(
b
)’.
[33]
Within the compass of the Rules, a ruling on jurisdiction of an
arbitration tribunal can be challenged in court.
[34]
Kamoto therefore has remedies to protect itself in the event that an
arbitration tribunal exceeds its powers. This is consistent
with
recognising that a high court has jurisdiction but that its powers
are circumscribed in deference to the autonomy of the parties
to the
arbitration clause.
[59]
With reference to the Rules and the international trend referred to
and relied on by both parties, it is clear that if courts
arrogate to
themselves the right to decide matters which parties have agreed
should be dealt with by arbitration, the likelihood
of this country
being chosen as an international arbitration venue in future is
remote in the extreme. Persons wishing to have
their disputes
resolved by arbitration do not wish the process to be retarded by
constant recourse to courts. As was said by Lord
Hoffman:
‘
[6]
In approaching the question of construction, it is therefore
necessary to inquire into the purpose of the arbitration clause.
As
to this, I think there can be no doubt. The parties have entered into
a relationship, an agreement or what is alleged to be
an agreement or
what appears on its face to be an agreement, which may give rise
to disputes. They want those disputes decided
by a tribunal which
they have chosen, commonly on the grounds of such matters as
its neutrality, expertise and privacy, the
availability of legal
services at the seat of the arbitration and the unobtrusive
efficiency of its supervisory law. Particularly in
the case of
international contracts, they want a quick and efficient adjudication
and do not want to take the risks of delay and,
in too many cases,
partiality, in proceedings before a national jurisdiction.
[7]
If one accepts that this is the purpose of an arbitration clause,
its construction must be influenced by whether the parties,
as
rational businessmen, were likely to have intended that only some of
the questions arising out of their relationship were to
be submitted
to arbitration and others were to be decided by national courts.
Could they have intended that the question of whether
the contract
was repudiated should be decided by arbitration but the question of
whether it was induced by misrepresentation should
be decided by a
court? If, as appears to be generally accepted, there is no rational
basis upon which businessmen would be likely
to wish to have
questions of the validity or enforceability of the contract decided
by one tribunal and questions about its performance
decided by
another, one would need to find very clear language before deciding
that they must have had such an intention.’
[35]
Lord
Hope of Craighead, in the same matter, said that the wording of an
agreement might provide that ‘
arbitration
may be chosen as a one-stop method of adjudication for the
determination of all disputes’.
[36]
In the present matter, the arbitration clause also tends to the
notion of a one-stop method for determining all disputes. To
recognise
the limited powers of the court is in line with the
international trends referred to in
Lufuno
,
Telcordia
and
Fiona
Trust
.
[60]
In the result, I agree with my colleague Willis JA that the court a
quo arrived at the correct result in dismissing the application
with
costs. As to the costs on appeal, both parties dealt with the matter
primarily as one involving jurisdiction. In fact, Kamoto
raised this
as its primary point of defence to the application and on this point
it has failed. In the result, I also agree that
there should be no
order for costs on appeal.
_______________________
T
R GORVEN
ACTING
JUDGE OF APPEAL
APPEARANCES:
For
the Appellant:
M D Kuper SC (with him, W
L
a Grange)
Instructed
by:
Bowman
Gilfillan, Johannesburg
c/o
Matsepes
Inc
, Bloemfontein
For
the Respondent: B Leech SC
Instructed
by:
Werksmans
Attorneys
, Johannesburg
c/o
Lovius Block, Bloemfontein
.
[1]
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews and another
2009
(4) SA 529
(CC) esp in paras 195 to 236.
[2]
Bank
Mellat v Helsinki Techniki S.A
[1984]
Q.B. 291.
[3]
At
314G-315C.
[4]
Fili
Shipping Co Ltd v Premium Nafta Products and Others [On appeal from
Fiona Trust and Holding Corpn and others v Primalov and
others
]
[2007] UKHL 40
;
[2007]
Bus LR
.
[5]
Para
13.
[6]
Fiona
Trust Holding Corpn and others v Privalov and others
[2007]
EWCA Civ 20; [2007] Bus LR.
[7]
Para
18.
[8]
Para
19.
[9]
Para
39.
[10]
Section
1
of the
Arbitration Act.
[11
]
Ibid.
[12]
See
also the Enforcement of Foreign Civil Judgments Act 32 of 1988, esp
s 2 thereof.
[13]
2008
(3) SA 355 (SCA).
[14]
Paras
38 to 59. See also
Metlika
Trading Ltd v Commissioner, South African Revenue Service
2005 (3) SA 1
(SCA) para 36.
[15]
Geldenhuys
and Neethling v Beuthin
1918
AD 426.
[16]
At
441.
[17]
The
term ‘academic’, in this context, has been
used in the following cases:
Trustees
J C Poynton Property Trust v Secretary for Inland Revenue
1970 (2) SA 618
(T) at 620B-D;
South
African Mutual Life Assurance Society v Anglo-Coal Collieries Ltd
1977
(3) SA 642
(A) at 658;
Muller
v The Master and others
1992 (4) SA 277
(T) at 282A and was approved by the Constitutional
Court in
Zantsi
v Council of State, Ciskei, and others
[1995] ZACC 9
;
1995 (4) SA 615
(CC) para 6.
[18]
Act
40 of 1977.
[19]
E
mphases
in the original.
[20]
Emphases
in the original.
[21]
Metlika
Trading Ltd & others v Commissioner, South African Revenue
Service
2005
(3) SA 1
(SCA) para 25.
[22]
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
2013 (5) SA 1 (SCA).
[23]
Act
59 of 1959 (the old Act). The old Act governed the application but
s 21(1)
of the
Superior Courts Act 10 of 2013
is to the same
effect as
s 19(1)(
a
)
of the old Act in this regard.
The definition of court in
s 1
of the
Arbitration Act 42 of
1965
refers us to the general grounds for South African courts to
exercise jurisdiction.
[24]
Rule
12
of the 6
th
edition of the Rules and
Rule 11
of the 5
th
edition.
[25]
Amalgamated
Clothing & Textile Workers Union of South Africa v Veldspun Ltd
[1993] ZASCA 158
;
1994
(1) SA 162
(A) at 169E-G;
North
East Finance
para 16.
[26]
Per
Goldstone JA in
Veldspun
at 169F-G.
[27]
Lufuno
Mphaphuli and Associates (Pty) Ltd v Andrews & another
2009
(4) SA 529 (CC).
[28]
Paragraph
219.
[29]
Paragraph
235.
[30]
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007
(3) SA 266
(SCA) para 4.
[31]
References
omitted.
[32]
Section
31.
[33]
Veldspun
at
169C-D.
[34]
Rule
12.3.
[35]
Fiona
Trust & Holding Corporation & others v Privalov & others
[2007]
UKHL 40
;
[2007] 4 All ER 951
(HL) paras 6 & 7.
[36]
Paragraph
27.