Summary of Judgment

Introduction

This matter concerned an application for summary judgment brought in the High Court of South Africa, Gauteng Local Division, Johannesburg. The applicant/plaintiff was Soraco Minerals (PTE) Ltd (“Soraco”). The respondents/defendants were DBG Import and Export CC (“DBG”) as first defendant, and Doron Baruch Golan (“Mr Golan”) as second defendant.

The proceedings arose after Soraco instituted an action claiming payment of US$100 000, and thereafter launched summary judgment on that claim. The claim was grounded in an alleged purchase and sale arrangement for the supply of cobalt, pursuant to which Soraco alleged it had paid an advance that was not repaid when supply did not occur.

Procedurally, the defendants opposed summary judgment. While the plea included a defence directed to the merits, Mr Golan also raised a special plea invoking an arbitration clause contained in the agreement and sought a stay of the court proceedings pending arbitration. The judgment addressed whether, in light of that special plea and the summary judgment standard, Soraco was entitled to summary judgment or whether the defendants should be given leave to defend.

Material Facts

Soraco alleged that it concluded a purchase and sale agreement with DBG, represented by Mr Golan, for the supply of cobalt. An addendum to that agreement provided for Soraco to make an advance payment of US$100 000, which Soraco paid.

It was common cause on the papers that the advance payment was made and that no cobalt was delivered under the agreement and addendum. Soraco further alleged that DBG undertook to refund the US$100 000 but failed to do so, leading Soraco to cancel the contract and demand repayment of the advance.

Soraco additionally pleaded that, upon instituting proceedings, it discovered that DBG had been deregistered years before the agreement was concluded. On that basis, Soraco alleged that Mr Golan acted recklessly, with gross negligence, or fraudulently, with the intention of misleading Soraco by contracting on behalf of an entity that was not registered, and it sought relief against Mr Golan under section 64 of the Companies Act.

In the defendants’ opposition, Mr Golan conceded that the purchase and sale agreement and addendum were entered into, conceded Soraco’s payment of the advance, and conceded that no cobalt was delivered. He nevertheless asserted that he, rather than DBG, entered into the agreement. In addition, he raised a merits defence to the effect that, on his interpretation of clause 4 of the addendum, any refund of the advance payment was to occur by delivery of cobalt rather than by repayment in money.

Separate from the merits defence, it was common cause that the purchase and sale agreement included an arbitration clause (clause 19) providing that disputes arising out of or in connection with the contract, not resolved amicably, would be settled by arbitration in Johannesburg by a mutually appointed arbitrator. Mr Golan relied on that clause in a special plea, seeking a stay of the action pending arbitration.

Legal Issues

The central question was whether Soraco had satisfied the requirements for summary judgment, or whether the defendants had raised a defence (including a dilatory defence) sufficient to justify leave to defend.

This involved determining, in substance, whether the special plea of arbitration was legally available to the defendants in the procedural posture of the case and whether it could properly be entertained at the summary judgment stage. The dispute was therefore primarily one of law and procedure, namely the relationship between section 6 of the Arbitration Act 42 of 1965 and the continued availability of a common-law dilatory plea seeking a stay pending arbitration, as well as the limited scope of factual determination permissible at the summary judgment stage.

A related issue concerned whether it could be decided at summary judgment stage that Mr Golan was not a party to the agreement and thus could not invoke the arbitration clause, or whether that question was for trial.

Court’s Reasoning

The court noted that Mr Golan’s plea included a merits defence regarding the form of any refund of the advance payment. The court observed that, for reasons not traversed in the judgment, the bona fides of that defence were “highly questionable,” and indicated that if that had been the only defence, it would have been inclined to consider granting summary judgment.

However, the opposition was not confined to the merits defence. The court focused on the special plea based on the arbitration clause. Soraco argued that the special plea was “still born” on two grounds: first, that Mr Golan was not a party to the agreement and could not rely on the arbitration clause; and second, that an application for a stay was brought after the defendants had already taken steps in litigation, contrary to section 6 of the Arbitration Act.

On the second point, the court accepted as trite that section 6 does not displace the common law, which also permits a stay to be sought pending arbitration by way of a special plea. The court relied on the explanation in PCL Consulting (Pty) Ltd t/a Phillips Consulting SA v Tresso Trading 119 (Pty) Ltd 2009 (4) SA 68 (SCA), which describes the two options available to a party faced with court proceedings despite an arbitration agreement: a statutory stay application under section 6 (subject to constraints relating to steps taken), or a special plea in the nature of a dilatory plea seeking a stay pending arbitration. The court further referred to the statement attributed to Rhodesian Railways Ltd v Mackintosh, as quoted in PCL Consulting, to the effect that once steps are taken in the proceedings, the section 6 procedure may no longer be available, but the arbitration point can still be raised by a special preliminary plea in the pleadings.

Applying those principles, the court held that, as a matter of law, Mr Golan was procedurally entitled to raise a special plea of arbitration despite having taken steps in the litigation. The court therefore rejected Soraco’s contention that the special plea failed merely because the defendants had taken steps that would preclude the section 6 procedure.

On Soraco’s argument that Mr Golan could not rely on the arbitration clause because he was not a party to the agreement, the court emphasised the limited function of the summary judgment stage. It held that it was not for the summary judgment court to determine definitively whether Mr Golan was a party to the agreement. For summary judgment purposes, it was sufficient that he pleaded entitlement to rely on the arbitration clause. The court reasoned that if Mr Golan could satisfy the trial court that he, rather than the first defendant, entered into the agreement, then the arbitration plea would properly arise for determination at trial. In those circumstances, the court could not find at the summary judgment stage that the dilatory plea was “still born.”

The court also noted that Soraco was not without recourse: at trial it would be open to Soraco to attempt to persuade the court that exceptional circumstances warranted the matter proceeding in court rather than arbitration, and that issues such as difficulties in appointing an arbitrator would become relevant then. This reinforced the court’s conclusion that summary judgment was not appropriate in the face of the arbitration special plea.

Outcome and Relief

The court refused the application for summary judgment and granted the defendants leave to defend the action.

The court ordered that the costs of the summary judgment application would be costs in the cause.

Cases Cited

PCL Consulting (Pty) Ltd t/a Phillips Consulting SA v Tresso Trading 119 (Pty) Ltd 2009 (4) SA 68 (SCA)

Rhodesian Railways Ltd v Mackintosh (full citation not provided in the judgment)

Legislation Cited

Arbitration Act 42 of 1965 (section 6)

Companies Act (section 64; Act number and year not specified in the judgment)

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that a defendant may raise an arbitration clause by way of a special plea seeking a stay pending arbitration even where the defendant has taken steps in the litigation such that the statutory mechanism in section 6 of the Arbitration Act 42 of 1965 may no longer be available. The court further held that, at the summary judgment stage, it was not appropriate to decide definitively whether Mr Golan was a party to the agreement and thus entitled to invoke the arbitration clause; it was sufficient that he pleaded facts that, if established at trial, could entitle him to rely on arbitration. On that basis, summary judgment was refused, leave to defend was granted, and costs were ordered to be costs in the cause.

LEGAL PRINCIPLES

A party faced with court proceedings instituted despite an arbitration agreement may seek to enforce arbitration either by an application for a stay under section 6 of the Arbitration Act 42 of 1965 or, where appropriate, by raising a special plea in the nature of a dilatory plea seeking a stay pending arbitration. The existence of section 6 does not exclude the availability of the common-law procedural mechanism of a special plea.

Where a party has taken steps in litigation that prevent reliance on the “cheaper and speedier” statutory stay procedure, the arbitration point may still be raised in pleadings by way of a special preliminary plea seeking a stay pending arbitration, as described in the authorities cited.

At the summary judgment stage, the court does not finally determine contested issues such as whether a particular defendant is a party to the contract containing the arbitration clause, where that issue depends on matters to be resolved at trial. For purposes of resisting summary judgment, it may be sufficient that the defendant pleads a basis upon which, if proved at trial, the arbitration clause could be invoked, rendering summary judgment inappropriate and justifying leave to defend.