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[2012] ZAECPEHC 38
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Sunday River Citrus Company v Valour Fruit Processors (Pty) Ltd and Another (1580/11) [2012] ZAECPEHC 38 (12 June 2012)
21
IN THE HIGH COURT OF
SOUTH AFRICA
EASTERN CAPE, PORT
ELIZABETH
CASE NO 1580/11
Date Heard: 8 December
2011
Date Delivered: 12 June
2012
In the matter between:
SUNDAYS RIVER CITRUS
COMPANY
…........................................................
APPLICANT
And
VALOR FRUIT PROCESSORS
(PTY) LTD
…..................................
FIRST
RESPONDENT
RENEÉ PAUL VAN
ROOYEN
…..................................................
SECOND
RESPONDENT
JUDGMENT
DAMBUZA J,
INTRODUCTION
[1] The applicant seeks
an order declaring that the first respondent has consented to the
second respondent sitting as an arbitrator
and determining whether
there exists an “arbitrable dispute” between the
applicant and the first respondent. In the
event that I find that the
first respondent has not consented to the second respondent
determining this issue then I should determine
whether there is an
“arbitrable dispute” between the applicant and the first
respondent.
PARTIES
[2] The applicant, the
Sundays River Citrus Company (SRCC
)
is a private company which conducts business as a packer, marketer
and distributor of citrus fruit produced by citrus farmers
in the
Sundays River Valley. It is a wholly owned subsidiary of the Sundays
River Citrus Company Holdings Limited whose members
are citrus
farmers in the Sundays River Valley. The farmers supply fruit to the
first respondent for packaging, marketing and distribution
on their
behalf.
[3] The first respondent,
Valor Fruit Processors
(Pty)
Ltd (Valor) conducts business as a processor of fruit for the
production of fruit juice concentrates which are blended with
water
for consumption as fruit juices and ancillary products.
[4] The second
respondent,
Adv. Reneé van Rooyen SC, is a
practicing advocate and Senior Counsel who was appointed by the
chairman of the Eastern Cape
Society of Advocates as an arbitrator in
this matter. No order is sought against him. For that reason,
reference in this judgment, to
“
the
parties”
shall only be in reference to the
applicant and the first respondent.
BACKGOUND
[5] In terms of written
supply agreements between the Sundays River citrus farmers and the
applicant, the farmers are obliged to
supply their citrus fruit to
the applicant for packaging, marketing and distribution. In
packaging, marketing and distributing
the fruit the applicant acts as
an agent for the farmers. The applicant’s core functions are to
maximize profits for the
farmers and to add value to the farmers’
farming operations.
[6] The citrus fruit
produced by the farmers is classified into four quality classes for
purposes of sale. The fruit is graded on
external appearance and
size. The applicant then exports the class 1 and class 2 fruits to
overseas markets. Class 3 fruit is sold
to markets in South Africa.
Class 4 fruit is sold to fruit processors such as the first
respondent.
[7] The applicant
contends that it has been supplying class 4 citrus fruit to the first
respondent for decades. Until 2008 the first
respondent was the only
fruit processor in the Eastern Cape. There was, however, another
fruit processor, Grano Passi, operating
in the Laangkloof area, less
than 200 kilometres from Sundays River Valley, but in the Western
Cape Province.
[8] Previously, the
applicant held a controlling interest in the first respondent. On 1
May 2006 the applicant sold its interest
in the first respondent to
the Barnes Family Trust, in terms of a written sale agreement. Clause
11 of that written sale agreement
makes provision for a supply
agreement to be concluded between the parties for supply of class 4
citrus fruit to the first respondent.
Indeed a fruit supply agreement
was concluded between the parties in September 2006. It was effective
from 1 January 2006 to 31
December 2010.
[9] The agreement
stipulates, amongst others, that the applicant is obliged to supply a
minimum of 20 000 tons of class 4 fruit
per annum to the first
respondent. The first respondent is obliged to give preference to the
applicant in its fruit processing
capacity.
[10] The price at which
the applicant supplies fruit to the first respondent is regulated by
clause 8 of the supply agreement which
provides that:
“
8.1 The purchase price of the fruit shall be a
minimum of R150 00 per tonne plus VAT during the first 5 (five) years
of this agreement
irrespective of variety or mix;
8.2 Valor shall inform SRCC annually of the weighted
average price that the market can support for SRCC’s fruit.
Should market
conditions improve to such an extent that Valor could
afford to pay more than R150.00 per tonne minimum purchase price,
after having
recovered any price subsidization in previous years, in
terms of the minimum price requirement of R150.00 per tone, the
parties
shall enter into good faith negotiations to agree to increase
the purchase price of the fruit during the following year, provided
the purchase price shall never be less than R150.00 per tonne plus
VAT.”
[11] The applicant’s
case is that until 2010 the first respondent never furnished the
applicant with the weighted average
price that the market could
support for each of the years 2006, 2007, 2008 and 2009. In 2006 and
2007 the first respondent supplied
fruit to the applicant at the
price of R150.00 per ton. In 2008 the parties agreed on an increased
purchase price, on an incremental
basis, in respect of different
types of class 4 fruit. The average price at which the first
respondent supplied fruit in that year
was R266.03 per ton. In 2009
and 2010 the purchase price reverted to R150.00 per ton.
[12] In 2009 another
fruit processor, Cape Fruit Processors,
commenced
juice processing operations in the Sundays River Valley. The
contention by the applicant is that Cape Fruit Processors
paid
substantially higher prices for class 4 fruit than the first
respondent during the 2009 and the 2010 seasons. On the mix and
volume of class 4 fruit supplied by the applicant to the first
respondent, Cape Fruit Processors would have paid R334.00 per ton
in
2009 and R524 in 2010, so contends the applicant.
[13] According to the
first respondent, the increased price payment was not based on
improvement in the markets. It was rather made
after the first
respondent had been approached by Mr J Stumpf who was the applicant’s
managing director at the time, and
who asked the first respondent to
consider paying more for the class 4 fruit supplied by the applicant.
Mr Stumpf undertook to
urge the board of the applicant to agree to a
better supply agreement with the first respondent at the expiry of
the then current
supply agreement. The price increase in 2008 was
therefore agreed on in anticipation of a more favourable and extended
supply relationship
between the parties, beyond the expiry of the
then current supply agreement on 31 December 2010. The first
respondent contends
further that the purchase price of R150,00 per
ton was always an
inflated
price, it being common cause that
immediately prior to the conclusion of the supply agreement ( in
2005), the applicant had provided
for revenue from class 4 fruit at
R28,00 per ton (in its 2005/2006 budget).
The
fact that the first respondent was obliged, in terms of the supply
agreement, to accept whatever mix of fruit the applicant
supplied,
regardless of non profitability of some types of fruit only served to
aggravate the distortion in the purchase price
of the fruit.
[14] In each of the years
2009 and 2010 the parties entered into negotiations regarding
possible increase in the purchase price
of class 4 fruits. But
because Mr Stumpf had left the applicant’s employment by then,
the negotiations aimed at concluding
a supply agreement which would
be more favourable to the first respondent fell by the wayside. The
first respondent was therefore
not willing to agree to a price
increase. According to the first respondent in 2009, it was made
clear to the applicant that the
first respondent would only pay the
stipulated price of R150,00 per ton. When the parties could still not
reach an agreement on
an increase in the purchase price (in 2010),
the applicant resolved to refer the matter for arbitration. The
applicant disputes,
in the replying affidavit, that the price
increase agreed on in 2008 was based on the promise of an extended
and more favourable
supply agreement in the future. The applicant
refers in this regard to correspondence between Barnes and Stumpf
preceding the price
increase. According to the applicant the
correspondence shows that the price increase was agreed on the basis
of clause 8.2 of
the supply agreement. In my view the basis of the
price increase in 2008 is peripheral to the determination of whether
there is
an arbitrable dispute between the parties.
REFERAL TO ARBITRATION
[15] On 15 June 2010 the
applicant wrote to the first respondent, declaring a dispute in terms
of section 14 of the supply agreement.
Initially, the first
respondent was agreeable to the matter being referred to arbitration.
I will revert to the question of the
nature of the dispute that was
to be referred for arbitration. Correspondence between the parties in
this regard reveals that their
attitude was that an accounting expert
would be best suited for appointment as an arbitrator.
Mr Mike
Smith,
a Chartered Accountant, was then appointed as an
arbitrator.
[16] It however became
evident in the correspondence between the parties, preceding the
anticipated arbitration, that they had not
been
ad idem
as to
the nature of the issues in dispute. The parties ultimately agreed
that a legal expert should be appointed as an arbitrator.
Smith
withdrew his consent to act as an arbitrator. The matter was referred
to the chairman of the Eastern Cape Society of Advocates,
Port
Elizabeth, for appointment of an arbitrator with legal experience.
The second respondent was then appointed.
[17] The second
respondent invited the parties to file statements of claim and
defence respectively. The problems regarding delineation
of the
issue(s) that were being referred for arbitration persisted. The
first respondent, having sought legal advice, took the
view that
there was no “arbitrable dispute” between the parties and
that the second respondent could not sit in judgment
on whether he
did have jurisdiction to determine whether there was an arbitrable
dispute between the parties (i.e to determine
his own jurisidiction)
[18] The applicant, on
the other hand, insisted that there was an “arbitrable dispute”
between the parties, and contended
further that, the first respondent
had consented to the dispute between the parties being referred for
arbitration. The applicant’s
attitude was further that the
second respondent could determine the question of whether he had
jurisdiction to determine his own
jurisdiction; but it accepted that
the first respondent who insisted that the second respondent did not
have such jurisdiction,
would not be bound by the second respondent’s
ruling on the issue. Hence the institution of these proceedings.
DID THE FIRST
RESPONDENT CONSENT TO THE SECOND RESPONDENT DETERMINING HIS OWN
JURISCTION AND IS THERE AN ARBITABLE DISPUTE BETWEEN
THE PARTIES?
[19] The applicant has
not set out any express factual basis in the founding affidavit for
its contention that the first respondent
consented to the second
respondent’s jurisdiction in respect of the determination of
whether there is a dispute between the
parties or not. But at the
hearing of this matter Mr Buchanan, who appeared on behalf of the
applicant, submitted that by agreeing
to issues relating to
determination of an increase in the purchase price of class 4 fruit
being referred to an arbitrator, the
first respondent was agreeing
that there was a dispute between the parties and was consenting to
the arbitrator determining his
own jurisdiction if or when
jurisdiction was contested. To this extent, so the applicant
contended, it was at the first respondent’s
instance that the
matter was referred to the Chairman of the Eastern Cape Society of
Advocates for appointment of a legal expert,
the first respondent
insisting that a “practicing and experienced” attorney or
advocate would be more suited to the
task, because the arbitrator
would be required to interpret provisions and determine application
of the supply agreement.
[20] As to whether
generally an arbitrator has jurisdiction to determine his own
jurisdiction, the Learned author, Ramsden,
1
writes:
“
If an arbitrator’s
jurisdiction is challenged or questioned, an arbitrator is entitled
to inquire into the merits of his jurisdiction
for the purpose of
satisfying himself as a preliminary matter whether he ought to
proceed with the arbitration. If the arbitrator
rules that he has
jurisdiction, he should proceed to resolve the merits of the parties’
dispute. If the arbitrator rules
that he has no jurisdiction, he
cannot proceed to an award on the merits.
An arbitrator cannot
however make a binding award as to the initial existence of the
contract (ie an arbitration agreement), if
in fact no contract was
ever made. In such a case the arbitration provisions of the supposed
contract never bound the parties;
and an arbitrator appointed under
those conditions could not have authority to act.”
[21] Mr Ford who appeared
on behalf of the first respondent compared the second respondent’s
position to that of the appeal
arbitrator in
Gutsche Family
Investments (Pty) Ltd v Metle Equity Group
2007 (5) SA 491(SCA)
at 494-495, wherein
Cachalia JA,
writing for the full Court,
held that:
“
Where the parties
themselves disagree as to the powers conferred on an appeal
arbitrator, the appeal arbitrator cannot extend the
area of
jurisdiction over the very matter which he is required to resolve.
And if he does, he will act beyond his mandate. The
contention
advanced by the appellants is that the appeal agreement empowered the
appeal arbitrator finally to determine his own
jurisdiction. It is a
far reaching contention implying that the agreement constituted an
ouster of the court’s jurisdiction.
Such an agreement must be
provided for specifically, and in the clearest terms.”
I agree. The second
respondent would, in this case, be determining the existence of the
arbitration agreement. If the first respondent
intended to grant him
that authority and thus oust the court’s jurisdiction, it would
have had to provide for that authority
specifically. It would be
improper to imply such authority from clause 8.2 of the supply
agreement as the applicant contended.
It is perhaps in recognition of
this fact that the submission was made that the first respondent’s
consent is contained in
the correspondence which preceded the
appointment of the arbitrators. But that submission does not take the
applicant’s case
any further.
[22]
Firstly,
it is common cause that the applicant declared a dispute
in
terms of clause 14 of the supply agreement
and
not as agreed in the correspondence between the parties. The relevant
portion of this clause provides that:-
14.1 “Any
difference or dispute between the parties in connection with the
interpretation or application of the provisions
of this agreement or
its breach or termination shall be referred to and be determined by
informal arbitration in terms of this
clause.”
14.2 “Either party
to this agreement may demand that the dispute be determined in terms
of this clause by written notice given
to the other party.”
[23] It is also common
cause that the second respondent was appointed as an arbitrator in
terms of the clause 14.4 of the agreement
of which provides that:
“
The arbitrator
shall be agreed upon between the parties. Should the parties fail
to agree on an arbitrator within seven (7)
days after the giving of
notice in terms of clause 14.1, the arbitrator will be appointed at
the written request of any party
to the dispute by the chairman for
the time being of the East Cape Society of advocates ( Port
Elizabeth)”
[24] The basis of first
respondent’s objection to the arbitration was that the supply
agreement did not entitle the applicant
to an increased purchase
price. And the deadlock in the negotiations aimed at an agreement on
an increased purchase price was not
a dispute envisaged in clause 14
of the supply agreement. I agree. Clause 14 regulates resolution of
disputes arising in connection
with the interpretation, application
or breach of the supply agreement. An increased purchase price does
not necessarily flow,
as a right, from clause 8.2 of the supply
agreement.
[25] The correspondence
relied on by the applicant does not reveal any consent by the first
respondent; there is neither consent
for the second respondent
determining his own jurisdiction nor consent that the issues
purportedly referred by the applicant for
arbitration are arbitrable
in the correspondence relied on. The principle that consent to an
arbitrator determining his contested
jurisdiction must be provided
for specifically and in the clearest terms applies equally in respect
of the correspondence on which
the applicant relies. I was not
referred to any of the letters and emails expressing such consent and
I could not find any.
[26] Having already found
that the supply agreement does not provide for a breakdown in
negotiations conducted in terms of clause
8 of the supply agreement
being referred for arbitration I now turn to the issue of whether the
first respondent, in the correspondence
referred to, did consent to
those issues being referred to arbitration, thereby agreeing that
there is an arbitrable dispute between
the parties.
[27] Prior to the
appointment of both Smith and the second respondent as arbitrators,
the issue(s) to be referred for arbitration
were first set out in a
letter dated 15 June 2010, addressed to the applicant by
Mr Ken
Niewenhuizen,
the applicant’s Managing Director, as
follows:
“
It is obvious from
our previous correspondence that we have reached a deadlock in our
negotiations regarding the purchase price
to be paid by Valour to
SRCC in respect of fruit delivered by SRCC to Valor during the 2010
season. I do not propose recording
details hereof in this letter,
save to record that there is clearly a dispute between Valor and SRCC
in this regard. I am sure
you will agree.
It is in the interests of
Valor that the dispute be resolved speedily. This letter serves to
advise that SRCC has elected to refer
this dispute and the refusal of
Valor to make a full and proper disclosure of its financial position
in fulfillment of its good
faith obligations, to informal arbitration
in terms of clause 14 of the Supply agreement.
Ancillary and
inextricably linked to these disputes is the purchase price paid by
Valor to SRCC for fruit supplied to Valor during
the 2006, 2007, 2008
and 2009 seasons. Valor and SRCC need to determine the extent of
overpayments and underpayments in respect
of these seasons.
[28]
Mr
Wallace Barnes
, the first respondent’s
chairman, responding to the letter from the applicant agreed that “
it
is in both parties interests that the 2010 pricing be agreed as soon
as possible.”
He undertook to think about
possible candidates to be nominated as arbitrators.
[29] In terms of
section
1
of the
Arbitration Act 42 of 1965
an “ ‘
arbitration
agreement’ means a written agreement providing for the
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”.
(my emphasis) I
can discern no specified matter in the applicant’s letter of 15
June 2010 read with the first respondent’s
response thereto.
[30]
“
An
arbitration agreement is a contract. Thus, where an offer to submit
to arbitration is made, the acceptance thereof must be unconditional,
unqualified, failing which there is no proper acceptance and no
binding agreement to go to arbitration. The agreement is construed
according to the principles governing the interpretation of
contracts.”
2
For there to be a valid
arbitration agreement, there has to be a defined or an identifiable
dispute as the object of that agreement.
And again the parties’
intention to entrust resolution of (a) specific issue(s) to a private
person or institution, rather
than a court of law, must be expressed
clearly. More specifically, if the first respondent intended to
authorize an arbitrator
to conclude an agreement on its behalf on the
mooted price increase, such authorization would have had to be
clearly articulated.
[31] Whilst, in the
letter of 15 June 2010 Nieuwenhuizen, referred to a number of issues
that should be referred to arbitration,
Barnes only referred to the
“2010 pricing” which should be “agreed”. I am
not persuaded that the response
by the first respondent that an
agreement that the 2010 pricing be “agreed”,
resulted in an arbitration agreement. In my view that
does not constitute an arbitration agreement in the sense that the
parties
agree on a defined dispute. Although Barnes was agreeable to
involvement of an arbitrator, the exact role that the arbitrator
would
play was never defined. I therefore cannot find that the first
respondent had consented to the referral of a defined dispute at
that
stage.
[32] Correspondence
between the parties subsequent to the first respondent’s
response to the letter of 15 June 2010 takes
the matter no further in
as far as the first respondent’s consent to arbitration is
concerned. The correspondence only reveals
that the parties directed
their efforts at the appointment of an arbitrator. Nieuwenhuizen
wrote to Smith advising that the parties
had agreed to appoint him as
an arbitrator. Smith enquired as to the issue(s) that were being
referred for arbitration as follows:
“
How
was my appointment agreed and is it documented in some way. Can you
clarify for me the nature of the dispute? i.e is it about
Para.8 of
the agreement and specifically sub-para 8. or is the more involved?”
[33]
Nieuwenhuizen
replied, advising that:
“
Once your
engagement has been finalized, I propose that the representatives of
the parties meet with you to finalize the issues
in dispute and the
arbitration procedures.”
And later, that:
“
In summary, SRCC
requires you, in your capacity as arbitrator, to determine:
The market value of the
fruit during the 2009 and 2010 seasons having regard to prevailing
market prices, i.e an objective test
and
The purchase price
Valor can afford to pay SRCC after recovery of any subsidization in
previous years having regard to its financial
position, i.e
subjective test.”
[34] Smith again inquired
further as follows:
“
At the
commencement of the process which will be the date of acceptance of
the terms of this letter by both parties, you are invited
to submit
an outline of the dispute from your perspective, in writing. This
outline should include but not be limited to the following
phrases in
clause 8:
Your interpretation of
‘Valor shall inform SRCC annually of the weighted average
price that the market can support for SRCC’s
fruit’ and
whether this was done
Which market is being
referred to, the citrus market generally or that pertaining only to
Valor’s products?
Your interpretation of
‘….. after having recovered any price subsidizing in
previous years …...’ Does
this wording indicate that
the basic price of R150 per tonne might have been to high at the
commencement of the contract?”
[35] The applicant’s
attitude was that the first respondent did not have to agree to the
dispute as formulated by the applicant
and that the dispute as raised
by the applicant at the time, being that the dispute
“
lies
within the ambit of clause 8”
of the supply
agreement raised an arbitrable dispute. According to the applicant,
specific details of the dispute would appear in
the parties’
submissions to the arbitrator.
[36] On receipt of the
applicant’s response to his inquiry Smith inquired from
Nieuwenhuizen whether the first respondent
was agreeable to the
applicant’s description of the dispute. A copy of this inquiry
by Smith was sent to Wallace. It is at
this stage that it became
apparent that the parties had not been
ad idem
as to the nature of the dispute. The first
respondent wrote to Smith that:
“
Before there can
be a reference to arbitration, an arbitrable dispute covered by a
valid arbitration agreement, which is capable
of formulation at the
time that an arbitrator is to be appointed, must exist, conversely,
no appointment of an arbitrator can be
made in the absence of such an
arbitrable dispute.”
[37] The first respondent
also expressed the view that there could be no arbitrable dispute
regarding the purchase price for fruit
delivered in 2009 season, that
price having been already agreed on and paid. According to the first
respondent there had not even
been negotiations aimed at revisiting
the price which the applicant had paid for the fruit in 2009. What
the parties had been negotiating
immediately prior to the applicant’s
letter of 15 June 2010, was a possible increase in the purchase price
for the 2010 season.
The first respondent’s attitude was
further, since the dispute to be referred by the applicant had
evolved from that pertaining
to pure financial issues to
issues relating to application of the terms of the
supply agreement,
a legal expert would be a more
appropriate arbitrator. Barnes then emphasized that the issues should
be limited to:
“
1 Did the market
conditions in the 2009 season improve to such an extent that Valor
could, after having recovered any price subsidization
in previous
years (ie. The years 2006,2007,2008 and 2009) in terms of the minimum
price requirement of R150,00 per tonne minimum
price, afford to pay
more than R150,00 per tonne minimum purchase price for the 2010year?
2 If so what is the
weighted average price that the market can support for SRCC”s
fruit in 2010, after having recovered such
price subsidization in
previous years (ie. Years 2006, 2007, 2008 and 2009)?”
[38] It is at this stage
that Smith withdrew his consent to act as an arbitrator and the
second applicant was ultimately appointed
in his place.
[39] It is common cause
that at the first meeting between the parties together with the
second respondent, Mr Oosthuisen, the first
respondent’s
attorney, raised the issue of whether the disputes between the
parties were arbitrable under clause 14 of the
supply agreement. He
suggested that this issue first be determined. An admission is made
on behalf of the first respondent that
at first Barnes was under the
impression that the second respondent could determine the issue of
whether there is an arbitrable
dispute between the parties But that,
in my view, does not necessarily vest the second respondent with
jurisdiction on that issue.
There is neither a written agreement
between the parties in this regard nor any other clear expression of
consent to arbitration.
[40] Following the
meeting between the second respondent and the parties, the statements
of claim and defence were filed.
[41] In the statement of
claim the applicant contends that it is an implied, alternatively, a
tacit material term of the supply
agreement that if the parties,
negotiating in good faith are unable to reach agreement on the
purchase price of the fruit, then
either party may declare a dispute
and refer such dispute for determination by an arbitrator in terms of
clause 14. My understanding
of the applicant’s case had been
that it was based on an express arbitration agreement. In any event,
as I have already stated,
for there to be a valid arbitration
agreement, the parties must expressly make a provision therefore. In
this case, if the parties
intended that an arbitrator should conclude
an agreement for them by fixing a price increase in circumstances
where they fail to
reach an agreement on a price increase, they
should have provided therefore expressly in the agreement. Clause 8.2
clearly provides
no deadlock resolution mechanism in this regard.
[42] Regarding the
purchase price of the fruit in 2009 the applicant contends, in the
statement of claim, that the improved market
conditions from 2008
continued in 2009, to such an extent that the first respondent could
afford to pay more than the minimum price
of R150,00 per ton.
However, the first respondent failed or refused to furnish to the
applicant, the information provided for in
clause 8.2 of the supply
agreement. This refusal by the first respondent frustrated the
negotiations and consequently an agreement
on a price increase.
[43] The applicant then
declares a dispute as follows:
“
SRCC hereby
declares a dispute in respect of the purchase price of the fruit
supplied by SRCC to Valor during 2009 season and requires
such
purchase price to be determined by the Arbitrator after verifying any
price subsidisation in previous years as set out in
clause 8.2.”
[44] A dispute in the
same terms is declared in respect of the purchase price for the fruit
for the 2010 season, except that in
this respect the applicant states
that an offer made by the first respondent, of an increased purchase
price of R195,00 was not
acceptable to the applicant. The applicant
then estimates the difference in the minimum purchase price of
R150,00 per ton and the
market value of the fruit supplied by the
applicant during the currency of the supply agreement is R12 million
to R40 million.
It then requests the arbitrator determines the
disputes on the following basis:
1 by fixing the purchase
price of fruit supplied by the applicant to the first respondent
during 2009 and 2010 seasons, after verifying
the subsidization in
the 2006, 2007 and 2008 seasons, as set out in clause 8.2; and
2 by ruling that the
costs of the arbitration proceedings, including the costs of the
SRCC’s legal representatives, be paid
by the first respondent.
[45] In its statement of
defence the first respondent raises the defences foreshadowed in the
correspondence between the parties.
It contends, as a first point
in
limine,
that
clause 14 of the supply agreement, in terms of which the applicant
referred the dispute to arbitration, does not entitle the
parties to
declare a dispute relating to determination of an increased purchase
price and payment of costs, to arbitration. It
also contends that the
only disputes capable of referral to arbitration under clause 14 are
disputes relating to interpretation
of the provisions of the supply
agreement, or application of the terms of the agreement, and/or
disputes that relate to the breach
of the agreement by either party.
The first respondent then concludes by stating that there is no
arbitrable dispute between the
parties.
[46] I have already
expressed my agreement with the submission that the supply agreement
does not entitle the applicant to an increased
purchase price or to
any price other that the R150,00 per ton provided for in clause 8.1
of the supply agreement. Contrary to the
applicant’s
contention, the supply agreement provides no resolution for a
breakdown in negotiations aimed at exploring an
increase in the price
at which the applicant supplies class 4 fruit to the first
respondent. Clause 8.2 only imposes a duty on
the parties to
negotiate in good faith. And as I have already stated, the first
respondent had already agreed to referral to arbitration,
of issues
relating to possible improvement in the market conditions during the
2009 season together with the weighted average price
that the market
could support for the applicant’s fruit for the 2010 season.
These are issues provided for in clause 8.2
of the agreement and
disputes which could properly be arbitrable under clause 14 of the
supply agreement. The applicant in this
case has not referred for
arbitration a dispute relating to the first respondent’s
alleged refusal to negotiate in good faith.
3
I can only conclude that
the persistence in referring the issue of the “fixing” of
an increased purchase price as the
central issue on arbitration was,
in my view, based on an incorrect interpretation of clause 8.2.
[47] It being my view
that the “dispute” between the applicant and the first
respondent is not arbitrable, it is unnecessary
to deal with the
propriety of the costs order sought by the applicant in the statement
of claim.
THE APPLICATION TO
STRIKE OUT
[58] The first respondent
seeks to have struck out from the applicant’s founding
affidavit paragraphs 84, 85 and 86 thereof
on the basis that the
contents of these paragraph amount to unsubstantiated, inadmissible
hearsay. Further averments that the first
respondent seeks to have
struck out from the papers are contained in the following paragraphs
of the replying affidavit; 12.4,
16.2, 29.5, 31.2, 131.1, 131.3 and
131.4 on the basis they are vexatious, argumentative, irrelevant and
designed to prejudice the
first respondent, paragraphs 12.5 to 12.9,
55, 38, 39, 59.3, 88.3 and 88,4 91.2, 113, 115.8 to 115.10, and the
affidavit of Frans
Von Ullman (Thalwitzer)
on
the basis that they are hearsay or should have been included in the
founding affidavit on the basis that they are hearsay or
should have
been included in the applicant’s founding affidavit and are
argumentative and designed to prejudice the first
defendant,
paragraph 29.5 as it is vexatious. The applicant opposes the
application to strike out on the basis that the averments
complained
of constitute relevant material for proper determination of the
issues in this matter, are in response to allegations
made in the
answering affidavit and are not prejudicial to the first respondent.
[49] The allegations in
the founding affidavit which the first respondent seeks struck out
relate to the purchase price allegedly
paid by Cape Fruit Processors.
Indeed these allegations are unsubstantiated. I also agree that if
these allegations are not struck
out the second respondent would be
prejudiced.
[50] In the replying
affidavit the applicant states that when Barnes was the applicant’s
director from 2001 to 2006 he had
access to the applicant’s
financial records. I have difficulty in understanding what conclusion
the applicant seeks to have
drawn from this allegation. There is no
explanation as to why it was not made in the founding affidavit. I am
satisfied that the
allegation is vexatious and would be prejudicial
to the first respondent if allowed to stand.
[51] In the replying
affidavit the applicant once more refers to the price paid by Cape
Fruit Processors to other fruit farmers
and attaches a supporting
affidavit drawn by Thalwitzer of Cape Fruit Processors. There is no
explanation why these allegations
and more importantly the supporting
affidavit, were not made in the founding affidavit.
[52] The applicant
further states, in the replying affidavit, that “Granor Passi
was prepared to pay market related prices
for class 4 fruit, unlike
the Valor”. I agree that the statement is vexatious and would
be prejudicial to the second respondent
if allowed to stand and taken
into consideration. I am of the same view in respect of another
averment in the replying affidavit
that: “I note that Patensie
Sitrus increased supplies of class 4 fruit to Valor from 2006 and
that Barnes attributes this
change in the business model of Valor
without furnishing any details for such changes. I suspect that the
actual reason was that
Valor paid Patensie Sitrus a market related
price for its class 4 fruit.”
[53] I am not persuaded
however that the averments made on behalf of the applicant in the
replying affidavit that Barnes must have
had knowledge of the second
respondent’s precarious financial position because he was a
director of the second respondent
are vexatious as alleged by the
second respondent. These averments were made in response to a denial
by Barnes that he had knowledge
of this fact. I am of the same view
in respect of the averments relating to withdrawal of the Patensie
Beherend from the first
respondent. These were made in response to
allegations made by Barnes in the answering affidavit on how the
applicant conducted
itself in negotiations with Patensie Beherend.
[54] I am also not
persuaded that the allegations made on behalf of the first respondent
about the background against which the
supply agreement was concluded
are inadmissible and designed to prejudice the first respondent. Once
again these were made in response
to the averments in the answering
affidavit that the agreement was drawn at the applicant’s
instance.
[55] Equally the response
in the replying affidavit to allegations about the negotiations that
were conducted with Stumpf were,
in my view, properly made.
[56] The application to
strike out therefore succeeds only in respect of paragraphs 84, 85
and 86 of the founding affidavit, and
following portions of the
replying affidavit: paragraphs 12.4 to 12.9, the last sentence of
paragraph 16.2, paragraphs 29.5, the
last sentence of paragraph 31.2,
paragraphs 59.3,113, and 115.8 to 115.10 (including annexures
thereto.
The order I grant is
therefore the following; that:
The application is
dismissed with costs;
The portions of the
founding affidavit and the replying affidavit set out in paragraph
55 of this judgment are struck out;
Each party shall pay its
own costs in respect of the application to strike out.
______________________
N. DAMBUZA
JUDGE OF THE HIGH
COURT
Appearances:
For the plaintiff: Adv.
Buchanan (S.C) Instructed by Mike Nurse Attorneys, Richmond Hill,
Port Elizabeth
For the defendant: Adv.
Ford (S.C) and Adv. J. Nepgen
Instructed by Schoeman Oosthuizen INC. Mill Park, Port Elizabeth
1
Ramsden
Peter; The Law of Arbitration; South African & International
Arbitration, 2009 at 92
2
LAWSA
first edition
Vol
1 at 272. Para 415
3
Compare
with Southernport Developments (PTY) Ltd v Transnet LTD
2005 (2) SA
202
(SCA)