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[2012] ZASCA 4
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Gutsche Family Investments (Pty) Ltd and Others v Mettle Equity Group (Pty) Ltd and Others (115/2011) [2012] ZASCA 4 (8 March 2012)
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THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
NOT REPORTABLE
Case No: 115/2011
In
the matter between:
GUTSCHE
FAMILY INVESTMENTS (PTY) LTD
…..................................
First Appellant
WENDY
HEATHER LYNCH NO
…......................................................
Second
Appellant
BERNARD
JOHN LYNCH NO
….............................................................
Third
Appellant
PATRICK
JOHN VERNON WILSON NO
…..........................................
Fourth
Appellant
v
METTLE
EQUITY GROUP (PTY) LTD
….............................................
First
Respondent
MICHAEL DAVID KUPER NO
….....................................................
Second
Respondent
ARNOLD SUBEL NO
…......................................................................
Third
Respondent
ANDRE ROBERT GAUTSCHI NO
…................................................
Fourth
Respondent
ARBITRATION FOUNDATION OF
SOUTH AFRICA
…...............................................................................
Fifth
Respondent
Neutral
citation:
Gutsche Family Investments v Mettle Equity Group
(115/2011)
[2012] ZASCA 4
(8 March 2011).
Coram:
Brand, Nugent,
Mhlantla JJA and Boruchowitz
et
Petse AJJA
Heard:
24 February 2012
Delivered:
8 March 2012
Summary: Review of award by
arbitration appeal tribunal in terms of s 33(1)(
a
) and
(
b
) of the
Arbitration Act 42 of 1965
– no ‘misconduct’
on part of tribunal as contemplated in
s 33(1)(
a
) –
not established that the tribunal committed any ‘gross
irregularity’ or ‘exceeded its powers’
in terms of
s 33(1)(
b
)
.
________________________________________________________________
ORDER
On appeal from:
South Gauteng
High Court, Johannesburg.
(Lamont J sitting as court of first
instance):
The appeal is dismissed with costs on
the attorney and own client scale and including the costs of two
counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
BRAND JA
(
NUGENT, MHLANTLA
JJA AND BORUCHOWITZ
et
PETSE AJJA:
[1] This is an appeal against the
dismissal of a review application by Lamont J in the South Gauteng
High Court, Johannesburg. The
application was brought by the
appellants in terms of
s 33(1)
of the
Arbitration Act 42 of
1965
. It was aimed at an award in favour of the first respondent,
Mettle Equity Group (Pty) Ltd (Mettle) by the second, third and
fourth
respondents, sitting as an arbitral appeal tribunal (the
tribunal). The appeal to this court is with the leave of the court a
quo.
Both the application in the court a quo and the appeal to this
court were opposed by Mettle only.
[2] The issues that arose for
determination will be best understood against the background that
follows. The first appellant is
a company, Gutsche Family Investments
(Pty) Ltd, while the other appellants are cited as the trustees of
the Lynch Trust. I propose
to refer to the company and the trust as
the appellants. During April 2003, the appellants sold the total
shareholding in a company,
Formex Industries (Pty) Ltd, which they
then held, to Mettle Operations Ltd for a price of R24 million. In
terms of the deed of
sale R18 million of the purchase price was
payable against delivery of certain specified documents and the
balance of R6 million
by no later than 31 March 2004. Subsequently,
Mettle Operations Ltd ceded and assigned its rights and obligations
in terms of the
sale to Mettle.
[3] At the time of the transaction
Formex mainly manufactured body parts for the automotive industry.
Mettle took the view that
it was not possible to do a technical due
diligence and in its stead sought a number of warranties from the
appellants. In the
event, the deed of sale included no less than 73
separate warranties in favour of Mettle. In terms of clause 8.5 of
the deed the
appellants jointly and severally indemnified Mettle
against any loss or damage which it ‘may sustain or incur from
the breach
of any one or more of the warranties’. These
warranties were destined to take centre stage in the dispute that
subsequently
arose between the parties.
[4] In due course, Mettle paid the
initial amount of R18 million in accordance with the deed of sale.
But on 31 March 2004 when
the R6 million became due and payable, it
paid an amount of R1 483 270.11 only. In a letter of that
date, which accompanied
the payment, Mettle claimed to set off the
balance of R4 803 558.89 on the basis that this amount
represented the loss
it had suffered through the appellants’
breach of several warranties. That triggered a dispute between the
parties. The deed
of sale provided for the referral of the dispute to
arbitration in accordance with the rules of the Arbitration
Foundation of South
Africa (the fifth respondent herein) and by an
arbitrator appointed by the Foundation. The parties also agreed to
incorporate an
appeal provision in the event that either of them was
dissatisfied with the arbitrator’s award.
[5] In their statement of claim the
appellants essentially claimed the outstanding balance of the
purchase price as due and payable
in terms of the agreement of sale.
In answer, Mettle filed both a statement of defence and a claim in
reconvention. In its statement
of defence it did not deny that the
part of the purchase price claimed by the appellants remained unpaid.
It pleaded, however,
that it had suffered a loss through the
appellants’ breach of warranties which exceeded the amount
claimed by the appellants
and that their claim had thus been
extinguished by set-off. It therefore prayed that the appellants’
claim ‘be dismissed
with costs, alternatively that an award is
stayed pending the determination of [Mettle’s] claim in
reconvention’. The
claim in reconvention relied on the same
breach of warranties by the appellants as a result of which Mettle
allegedly suffered
a loss. Apart from interest and costs of suit,
Mettle therefore claimed the amount of its alleged loss.
[6] Central to the appellants’
answer to both the defence of set-off and the claim in reconvention
raised by Mettle, stood
their reliance on clause 22 of the deed of
sale. It provided:
‘
Breach
If
either the Sellers or the Purchasers (hereinafter in this clause 22
“the Defaulting Party”) shall be in breach of
any one or
more of their obligations in terms of this Agreement including a
Warranty referred to in clauses 8 and 9 and shall fail
to remedy such
breach within 30 (thirty) days of receipt of written notice from the
other Party (hereinafter in this clause 22
“the Aggrieved
Party”), the Aggrieved Party shall have the right to seek
specific performance of all the Defaulting
Party’s obligations
then due, or the right to cancel this Agreement and to seek
restitution, in either instance without prejudice
to the right of the
Aggrieved Party to claim such damages as it may have suffered by
reason of such failure and further without
prejudice to the right of
the Aggrieved Party to seek an appropriate order in terms of the
provisions of
Rule 22
(4) of the Rules of the High Court of South
Africa.’
[7] Relying on the provisions of
clause 22 the appellants took exception to Mettle’s claims on
the basis that they were premature
in that Mettle had failed to give
them notice to remedy their alleged breaches of warranty within 30
days. The arbitrator dismissed
the exception. His reasons, in broad
outline, were that he agreed with the appellants that in terms of
clause 22, notice to remedy
their alleged breaches of warranty within
30 days was an essential prerequisite to Mettle’s claim. He
held, however, that
at the exception stage Mettle’s letter of
31 March 2004 – which accompanied payment of the reduced amount
– should
be accepted as proper notice in terms of clause 22.
The appellants successfully appealed this dismissal of their
exception to a
single appeal arbitrator. Mettle thereupon applied to
the South Gauteng High Court for the setting aside of the appeal
arbitrator’s
decision, essentially on the basis that the
dismissal of the exception was not appealable since it did not
constitute a final award.
The application succeeded in the High
Court. The appellants in turn appealed against that decision to this
court which dismissed
the appeal in a judgment since reported as
Gutsche Family Investments (Pty) Ltd v Mettle Equity Group (Pty)
Ltd
2007 (5) SA 491
(SCA).
[8] Four years after its initial
start, the matter therefore returned to the arbitrator for the
hearing of oral evidence on the
merits. Consistent with his earlier
ruling that Mettle’s letter of 31 March 2004 constituted the
requisite notice in terms
of clause 22, the arbitrator held at the
outset that Mettle was debarred from relying on two of its claims
that were not mentioned
in that letter at all. In consequence Mettle
was precluded from leading any evidence in support of these claims.
For present purposes
I need say no more about these two claims than
that they were formulated in paragraphs 3.7 and 3.8 of Mettle’s
statement
of defence under the headings ‘tool rework’ and
‘obsolete stock’, respectively.
[9] At the end of the hearing the
arbitrator again considered the appellants’ reliance on clause
22. At that stage he confirmed
that, on his interpretation of the
clause, it imposed a duty upon Mettle to notify the appellants in
writing of any breaches of
the agreement and to afford them the
opportunity to remedy such breach within 30 days. Only if the
appellants then failed to remedy
the breach would a claim lie against
them. In addition, it is clear from the arbitrator’s reasoning
that, in his view, it
mattered not whether the claim was for
cancellation, specific performance or damages. Whatever the claim, so
he concluded, clause
22 imposed prior notice as an absolute
prerequisite for any claim based on breach of warranty.
[10] The next step for the arbitrator
was to reconsider whether, in the light of all the evidence he had
heard since the exception,
Mettle had indeed given the required
notice. After consideration he concluded that it had not. In
consequence he held that none
of Mettle’s claims could
therefore succeed; neither by way of a defence reliant on set-off,
nor by way of a counterclaim.
In consequence he made an award in
favour of the appellants for the full outstanding balance of the
purchase price together with
capitalised interest – which at
that stage amounted to R8 434 579.17 – as well as
further interest on that
amount, from date of his award and costs.
[11] Despite this decision, the
arbitrator acceded to a request by Mettle that he should deal with
the merits of its claims. By
then it was virtually common cause that
the appellants had breached some of the warranties and that Mettle
had established losses
in the amount of R1 047 150.50 as a
result of those breaches. The arbitrator further held that, apart
from these, Mettle
had proved additional losses in an amount of
R1 852 975 as a result of other breaches of warranty that
were denied by
the appellants. The residual claims by Mettle, which
pertained to so-called press control panels, he found not to have
been established.
[12] It is against that award that
Mettle noted an appeal to the tribunal. Since part of the notice of
appeal found its way into
the tribunal’s award, which is
challenged in these proceedings, I recite that part verbatim. It
reads:
‘
.
. . [Mettle] hereby notes an appeal against those portions of the
arbitrator’s decision dated 28 May 2008 in which he held
that:
1.
[Mettle] was obliged to give notice to [the appellants] in terms of
clause 22 of the sale agreement in order to found its defence
of set
off and its counter-claim against [the appellants];
2.
insofar as [Mettle] was obliged to give notice to [the appellants] in
terms of clause 22 of the sale agreement, it did not give
such notice
in respect of any of its claims;
3.
insofar as [Mettle] was obliged to give notice to [the appellants] in
terms of clause 22 of the sale agreement, [the appellants]
did not
waive their right to be given notice in respect of all its claims;
4.
[Mettle] did not prove its claim in relation to the press control
panels;
5.
[Mettle] was not entitled to proceed with its claims as set out in
paragraphs 3.7 and 3.8 of the statement of defence;
as
well as the order of costs.’
[13] The appellants, in turn, filed a
conditional cross-appeal. In broad outline they contended that if the
appeal were to succeed
on any aspect, the arbitrator had erred in the
findings on the merits that he made in favour of Mettle. Eventually,
the tribunal
split two to one on the interpretation of clause 22. The
minority agreed with the arbitrator’s interpretation. The
majority,
on the other hand, found that his interpretation was
erroneous. On a proper interpretation of the clause, so the majority
held,
the notice requirement only pertained to claims for specific
performance and cancellation. It required no notice if the aggrieved
party claimed damages. Since Mettle’s claim was essentially one
for damages resulting from the appellants’ breach of
warranties, so the majority held, its claim was not precluded by lack
of notice.
[14] In addition, the tribunal
unanimously held that the arbitrator had erred in his determination
of the losses that Mettle had
established. According to the findings
of the tribunal Mettle had succeeded in establishing losses of
R3 974 750.42.
As to Mettle’s claim in paragraphs 3.7
and 3.8 of its statement of defence for ‘tool rework’ and
‘obsolete
stock’ the majority held that the arbitrator
had erred in preventing Mettle from leading evidence in support of
these claims
on the basis that they were barred by lack of notice
under clause 22. In consequence they decided that these two claims
should
be remitted to the arbitrator for adjudication. In this light
the majority of the tribunal upheld the appeal against the
arbitrator’s
award with costs.
[15] Since a proper understanding of
the appellants’ challenge against the majority award requires
reference to its exact
terms, a rather lengthy quotation of those
terms seems unavoidable. They read:
‘
In
view of our findings, [Mettle’s] appeal is to be upheld and
[the appellants’] cross-appeal fails. We accordingly
make the
following award:
(a)
[Mettle’s] appeal is upheld in respect of those portions of the
Arbitrator’s decision dated 28 May 2008 as are identified
in
paragraphs 1, 2, 4 and 5 of the appellant’s notice of appeal .
. . (subject to a reduction in the claim relating to control
panels
by an amount of R130 202.82). The final amount for which [the
appellants] are liable to [Mettle] is to be calculated
after the
determination of [Mettle’s] claim referred to in (d) below;
(b)
[the appellants] are to pay the costs of [Mettle’s] appeal,
including the costs consequent upon the employment of two
counsel;
(c)
[the appellants’] cross-appeal is dismissed with costs,
including the costs consequent upon the employment of two counsel;
(d)
[Mettle’s] claim as set out in paragraphs 3.7 and 3.8 of its
statement of defence in respect of tool rework and obsolete
stock is
remitted to the Arbitrator for adjudication.
(e)
The Arbitrator’s cost award is set aside and the question of
costs, other than those which have been determined in this
appeal, is
remitted to the Arbitrator for a decision once all issues have been
determined by him.’
[16] As I have indicated by way of
introduction, the appellants’ challenge against that award
rests on the provisions of
s 33(1)
of the
Arbitration Act 42 of
1965
. That section provides:
‘
(1)
Where–
(
a
)
any member of an arbitration tribunal has misconducted himself in
relation to his duties as arbitrator . . . ; or
(
b
)
an arbitration tribunal has committed any gross irregularity in the
conduct of the arbitration proceedings or has exceeded its
powers; or
(
c
)
an award has been improperly obtained,
the
court may, on the application of any party to the reference . . .
make an order setting the award aside.’
[17] In its application papers the
appellants relied on both
sections 33(1)(
a
) and 33(1)(
b
).
But the reliance on
s 33(1)(
a
) appears to have been
jettisoned at an earlier stage and I believe rightly so. The
‘misconduct’ contemplated in
s 33(1)(
a
) has
been held to denote some element of moral turpitude or
male fides
on the part of the arbitrator (see eg
Dickenson & Brown v
Fisher’s Executors
1915 AD 166
at 176;
Bester v Easigas
(Pty) Ltd
1993 (1) SA 30
(C) at 36-37;
Amalgamated Clothing &
Textile Workers’ Union of South Africa v Veldspun (Pty) Ltd
[1993] ZASCA 158
;
1994 (1) SA 162
(A) at 169C-D). A mere mistake cannot be said to
constitute ‘misconduct’. Since there was never any
suggestion of
male fides
or moral turpitude on the part of the
tribunal, any reliance on
s 33(1)(
a
) was doomed to fail.
[18] What therefore remained was the
appellants’ challenge on the basis of
s 33(1)(
b
),
that the majority of the tribunal not only exceeded its powers, but
also committed a gross irregularity in the conduct of the
proceedings. Both these concepts recently enjoyed full consideration
and discussion by this court (see eg
Telcordia Technologies Inc v
Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) paras 52
et seq
;
Hos
& Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing
& Consulting (Pty) Ltd
[2007] ZASCA 163
;
2008 (2) SA 608
(SCA) paras 28
et
seq
;
Road Accident Fund v Cloete NO
2010 (6) SA 120
(SCA)
para 36). As I see it, further elaboration can therefore serve no
useful purpose. Suffice it therefore to distil the following
three
principles from these decisions that are relevant for present
purposes.
(a) Errors of law or fact committed by
an arbitrator do not in themselves constitute grounds for review by a
court under
s 33(1)(
b
). Whether or not we agree with the
conclusions arrived at by the majority of the tribunal on the various
disputes between the parties,
is therefore of no consequence.
(b) In order to justify a review on
the basis of ‘gross irregularity’ the irregularity
contended for must have been
of such a serious nature that it
resulted in the aggrieved party not having his or her case fully and
fairly determined.
(c) Arbitrators, including arbitral
appeal tribunals, are bound by the pleadings. The only difference
between the two in this regard,
as I see it, is that on appeal the
pleadings also include notices of appeal and cross-appeal. Unlike a
court, arbitrators therefore
have no inherent power to determine
issues or to grant relief outside the pleadings. Arbitrators who
stray beyond the pleadings
therefore exceed their powers as
contemplated by
s 33(1)(
b
).
[19] Departing from these principles,
the appellants’ objections against the challenged award were
essentially twofold. Firstly,
that the tribunal exceeded its powers
by ignoring the dispute on the pleadings and the relief claimed in
the notice of appeal.
Secondly, that this resulted in an award which
entirely negated their main claim against Mettle and thus deprived
them of the opportunity
to enforce that claim.
[20] In developing these objections,
the appellants pointed out that their claim in convention, for the
balance of the purchase
price of the shares, was never disputed by
Mettle, neither in its pleadings nor in its notice of appeal. The
relief sought in the
latter was that the arbitrator’s award be
set aside and substituted with an award upholding the plea of set-off
and awarding
the appellants the difference between some R8 million
(representing the outstanding balance of the purchase price together
with
the capitalised interest) and some R4 million (representing the
sum total of the losses it claimed). In the alternative the notice
of
appeal sought an award upholding both the appellants’ claim and
Mettle’s counterclaim with the implied corollary
that set-off
be applied thereafter.
[21] But, so the appellants’
argument continued, the tribunal ignored the relief claimed in the
notice of appeal and chose
rather to uphold the grounds of appeal in
paragraphs 1, 2, 3 and 5 of that notice. Without any reference to
their claim in convention,
the award then provides that the final
amount for which the appellants are liable to Mettle is to be
calculated after determination
of the outstanding claims in
paragraphs 3.7 and 3.8 of Mettle’s statement of defence. Since
the arbitrator is
functus officio
, save to the extent he has
been empowered by the terms of the appeal award, so the appellants’
argument concluded, they have
been deprived of their claim in
convention in its entirety. All that the arbitrator is allowed to do
in terms of the tribunal’s
award, so the appellants contended,
is to determine the amount for which they are liable to Mettle
without any regard to the main
claim which by all accounts exceeded
Mettle’s counterclaim by a substantial margin.
[22] It should be apparent that the
appellants’ objection is exclusively based on their
interpretation of the majority award.
But I do not agree with that
interpretation. That, in my view, renders the objection inherently
flawed. As the appellants correctly
pointed out, it is clear from the
notice of appeal that the appellants’ claim in convention was
never in dispute. The arbitrator
awarded the full amount of that
claim to the appellants. In the notice of appeal Mettle sought the
setting aside of that award
for one reason only, namely that it took
no account of the counterclaim. The main claim was therefore never
challenged before the
tribunal.
[23] As to Mettle’s
counterclaim, it is further pointed out by the appellants, again
correctly, that even before the commencement
of the proceedings
before the tribunal, it was clear that Mettle’s reliance on
set-off could not succeed. Its claims were
patently not liquidated.
Before the tribunal both parties therefore approached the matter on
the basis that all outstanding issues
presented for determination
related to Mettle’s counterclaim and that any award in its
favour on the counterclaim would lead
to a deduction of the amount
awarded from the appellants’ undisputed main claim. The
tribunal simply adopted the same approach.
[24] Following that approach, the
tribunal first decided that the arbitrator was wrong in excluding
Mettle’s counterclaim
in its entirety on the basis of clause 22
of the deed of sale. It then proceeded to deal with the counterclaim
on its merits. It
did so with reference to the issues raised in both
the notice of appeal and the conditional cross-appeal. It decided
those of the
issues thus raised that were capable of determination on
the available evidence and remitted the outstanding two claims to the
arbitrator for his adjudication. In conclusion the tribunal held that
the amount for which the appellants would be liable to Mettle
could
only be calculated after determination of the outstanding two claims.
Although the tribunal did not expressly say so, its
reference to ‘the
amount for which the appellants are liable to Mettle’ can only
refer to the counterclaim. That is
the only claim the tribunal was
asked to determine. Thus understood the award does not affect the
arbitrator’s award under
the main claim at all. What remains to
be done after final determination of the counterclaim is for the
amount so determined to
be deducted from the amount previously
awarded by the arbitrator under the main claim.
[25] Once the award is understood in
its proper context, the conclusion is inevitable that the tribunal
did not fail to decide an
issue that was before it and that it
granted the very relief sought from it on appeal. What becomes
equally apparent is that the
appellants’ fears of being
deprived of their claim against Mettle were completely unwarranted.
It follows that the court
a quo was correct in its finding that the
tribunal committed no gross irregularity nor had it exceeded its
powers as contemplated
in
s 33(1)(
b
).
[26] Mettle asked for attorney and own
client costs, both in the court a quo and on appeal. It relies on a
provision to that effect
in the share sale agreement. According to
established authority, a court will give effect to an agreement
relating to costs, unless
good grounds exist for following a
different route (see eg
Intercontinental Exports (Pty ) Ltd v
Fowles
1999 (2) SA 1045
(SCA) para 26). Since it is common cause
between the parties that no such grounds exist in this case, the
court a quo rightly awarded
costs in favour of Mettle on the agreed
scale. As I see it, this court should follow the same course with
regard to the costs on
appeal.
[27] In the result the appeal is
dismissed with costs on the attorney and own client scale and
including the costs of two counsel.
______________________
F D J BRAND
JUDGE OF APPEAL
APPEARANCES:
APPELLANTS: R G Buchanan SC
E A S Ford SC
INSTRUCTED BY: Rushmere Noah Inc,
Port Elizabeth
CORRESPONDENTS: Webbers Attorneys
Bloemfontein
RESPONDENTS: S A Cilliers SC
M A Wesley
INSTRUCTED BY: Prinsloo Tindle &
Andropoulos Inc
Johannesburg
CORRESPONDENTS: McIntyre & Van der
Post
Bloemfontein