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South Africa: Kwazulu-Natal High Court, Pietermaritzburg
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[2023] ZAKZPHC 31
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Lukoil Marine Lubricants DMCC v Natal Energy Resources and Commodities (Pty) Ltd (12583/21P) [2023] ZAKZPHC 31 (16 March 2023)
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE NUMBER 12583/21P
In the matter between:
LUKOIL MARINE
LUBRICANTS DMCC
APPLICANT
And
NATAL ENERGY RESOURCES
AND COMMODITIES
(PTY)
LTD
RESPONDENT
JUDGMENT
P
C BEZUIDENHOUT J
:
[1]
Applicant is a company incorporated in terms of the laws of United
Arab Emerits and
having its registered head office or principal place
of business at Dubai UAE. It is a subsidiary of Public Joint Stock
Company
Lukoil Oil Company a Russian multinational energy corporation
with its headquarters in Moscow (PJSC Lukoil).
[2]
Respondent is a company registered in South Africa and with its
registered address
as 180 Mahatma Gandhi Road office 222 Spinnaker
Durban Point KwaZulu-Natal.
[3]
Since 2010 Applicant and Respondent have had a commercial
relationship. Applicant
engaged Respondent to perform certain
services for it.
[4]
On 27 April 2016 Applicant and Respondent entered into an agreement
headed Distributor
and Sales Agreement for Marine Lubricants. This
agreement was effective for a period of five years and it would
thereafter automatically
be renewed for successive five year periods.
From the papers it appears that various disputes arose between the
parties about stock
losses, audits etc. The parties however did not
want to cancel the relationship between them and agreed on terms to
continue dealing
with each other.
[5]
On 1 July 2019 Applicant and Respondent entered into a Marine
Lubricant Service Provider
Agreement. In terms of this agreement
Respondent was responsible to store the goods which are supplied to
it in a safe place, carry
out an audit, sell the goods, compile an
inventory once a quarter and at all times ensure that there is
adequate insurance cover
in respect of the products which it is
holding on behalf of Applicant. Agreement was also reached as to
payment which had to occur
and the invoicing thereof.
[6]
Paragraph 11 of the agreement deals with the termination of the
agreement and allows
for a three month notice period to the other
party. It further sets out that if there is a material breach of any
terms of the
conditions of the agreement and it is not remedied to
the satisfaction of the other party then the breach of clauses 3.3
(a) 4,
6 and 7 by Respondent, which relates to the
inter alia
insurance and obligations of Respondent in storing and dealing
with the products would be regarded as a material breach entitling
Applicant to terminate the contract. It further provides that if the
contract is terminated Respondent shall deliver to Applicant
the
goods which had been delivered to it by Applicant.
[7]
Paragraph 16 of the agreement deals with arbitration and states that
any claim or
dispute or difference arising out of or in connection
with this agreement or its validity, interpretation, implementation
or alleged
breach of any provisions thereof, any contracts, dealings
or transactions pursuant thereto or any rights, obligations, terms or
conditions contained in the agreement or the interpretation or
construction of the agreements or anything done or omitted to be
done
pursuant to the agreement shall as far as possible be resolved by
mutual consultation. It then provides that if after 30 days
this
cannot be done it will be done by way of arbitration. It then
provides “The arbitration proceedings shall be conducted
in
London and subject to the LMAA rules in force at the time the
arbitration proceedings are commenced. The arbitration proceedings
shall be governed by English law.”
[8]
However due to the disputes that arose between Applicant and
Respondent as to quantities
of oil and related products which it was
alleged had not been accounted for they on the same day as the
agreement 1 July 2019 entered
into a settlement agreement. In the
settlement agreement it was stated as follows in paragraph (C):
“
Without
any admission of liability by either party, the parties now intend to
settle all potential claims arising out of or in connection
with the
total stock losses, and release each other (and waive any rights that
they might have in relation to the same) from any
liability incurred
in relation to the Total Stock losses and/or the contract.”
Paragraph (D) states:
“
This
agreement is conditional upon the successful continuation and
conclusion of the contract for the full contractual period or
full
duration of any extension thereof unless terminated by valid breach
thereof by Natal and the value Lukoil will pay per the
agreed
contract price and MT volume as set out herein.”
The “contract”
referred to appears to be the contract concluded on 27 April 2016. It
was agreed that in respect of the
stock losses which were finally
settled Respondent would pay 0.05 US $ per litre of the supplied
volume in the month of invoice
to Applicant.
[9]
Paragraph 10 and 11 of the settlement agreement stipulate it shall be
governed by
English law that any dispute arising out of or in
connection with the settlement agreement shall be resolved by way of
London arbitration
proceedings governed by the LMAA rules in force at
the time of commencement. Both agreements thus require that disputes
be settled
by arbitration in London.
[10]
Applicant contends that due to various breaches by Respondent in that
certain quantities of the
products have not been accounted for, that
there had not been audits, that there had been no insurance etc.,
that the service provider
agreement had thus been terminated and
accordingly it is entitled to the relief which is set out in the
notice of motion. It therefore
seeks that lubricants which are in the
possession of Applicant be returned, payment of US $ 358 526 together
with interest a further
payment of US $ 149 124 plus interest and
that a customs surety bond deposit with the South African Revenue
Services be cancelled
by Respondent and costs.
[11]
Various correspondence ensued between the parties relating to the
claim of stock losses, the
reasons therefore that there was no
insurance cover and that the necessary audits were not conducted.
Applicant contends that it
terminated the agreement after the
breaches by Respondent were not rectified.
[12]
In its answering affidavit Respondent as a first point
in limine
contends that the settlement agreement was concluded and all rights
in respect of any claims for stock losses had been settled.
There are
disputes as to where the goods were stored, insurance claims that
were still pending and where goods had to be delivered
to. It further
contends that in the event of any dispute in terms of the agreement
and settlement agreement entered into on the
same day it was agreed
that it should be governed by English law and by way of arbitration
proceedings to be convened in London
by the LMAA rules. The parties
failed to resolve the matter and accordingly in terms of the
agreements the English law will apply
and it will have to be done by
way of arbitration in London. It then requests that the application
should be stayed pending arbitration
proceedings to be pursued and
conducted in London according to the LMAA rules.
[13]
The second point
in limine
was that due to the numerous
disputes of fact and a counter application which is to be instituted
by Respondent that it should
be referred to trial. It then addresses
the issues raised in connection with stock losses, insurance, audits
etc. which it is not
necessary at this stage to deal with.
[14]
Applicant in reply sets out that it seeks the return of certain
products which Respondent has
no right to hold. It contends that the
relationship has been terminated and accordingly it is entitled to
have such goods returned
to it.
[15]
It was submitted on behalf of Applicant that the agreements have been
cancelled, and that Respondent
was changing its version. It first
contended that the agreement was invalid but now wants to take it to
arbitration in England
in terms of the agreements. It was submitted
that an election has to be made in that regard. If Respondent can
change its mind
then it must pay the costs. It was submitted that
Applicant was entitled due to the breaches as set out in its papers
to cancel
the agreement. There were no disputes of facts and that on
Respondent’s version Applicant was entitled to cancel the
agreement.
The amounts which are being claimed have to be paid and
Respondent was moving the goal posts the whole time.
[16]
It was submitted on behalf of Respondent that it has to be determined
whether indeed there was
a repudiation by Respondent resulting from
the correspondence that had taken place. That was an enquiry which
had to be conducted.
Applicant relied upon a breach which appears
from annexure “SA15” a letter dated 13 August 2021 and
then the termination
notice. That was the first time that there was
mention of a repudiation. It is submitted that it happened over the
covid-19 period,
that there was no automatic cancellation and no
repudiation. It was submitted that the arbitration clauses were
applicable and
that it had to be referred to arbitration. In the
alternative that it will have to go to trial due to the various
disputes of fact.
[17]
It was however submitted on behalf of Applicant that in the event of
the matter being referred
to arbitration that Respondents must pay
the costs of the application. This is based on the submission that at
first Respondent
contended that the agreements were invalid.
[18]
From a reading of the papers it is apparent that from the time
Respondent filed its answering
affidavit it has set out that it is a
term of the agreements that any dispute has to be resolved by
arbitration if it cannot be
resolved and that this should take place
in England. It may have been Respondents contention in various of the
letters that the
agreements were invalid but since this application
was brought Respondent has been consistent that the agreements
require that
disputes be resolved by arbitration in London.
[19]
In my view in terms of the agreements it is agreed between the
parties that any dispute which
may result from the said agreements
have to be dealt with by arbitration in England in terms of English
Law if it cannot be resolved.
From the papers it appears that there
is a dispute as to whether there has been repudiation or not. Whether
there is still the
requirement for the payment of the monetary
amounts due to the settlement agreement which was reached and whether
indeed there
were breaches thereof and on what basis they could
perhaps have been justified or not. These are issues which in my view
cannot
be determined from the papers before me. It would be the
correct approach that the matter be decided in arbitration
proceedings
in terms of the agreements, which is to be in London.
There is no bar to the matter being heard by arbitration in London.
Tee Que
Trading Services (Pty) Ltd v Oracle Corporation South Africa
(Pty) Ltd and Another
(2022) ZASCA 68
(17 May 2022).
[20]
It would appear to me that the matter be stayed pending the
finalisation of the arbitration proceedings
in London is the most
feasible solution in the circumstances.
[21]
Applicant could after the answering affidavit was filed have agreed
to arbitration. This could
have reduced the costs in this matter. In
my view it is not appropriate to make any costs order at this stage.
I accordingly make the
following order:
1.
The application is
stayed pending the finalisation of arbitration proceedings in London
according to English Law and the LMAA rules
prevailing at the time.
2.
Costs are reserved.
P C BEZUIDENHOUT J.
JUDGMENT RESERVED
ON:
16 FEBRUARY 2023
JUDGMENT HANDED DOWN
ON: 16
MARCH 2023
COUNSEL FOR
APPLICANT:
H W
S MARTIN
Instructed
by:
Baker & McKenzie Attorneys
Johannesburg
Ref: D Bernstein/V
Raja/ K Slambet/CJ
Tel: 011 911 4300
c/o:
Cajee Setsubi Chetty
Incorporated
Pietermaritzburg
Ref: Mr A Essa
Tel: 083 259 8786
COUNSEL FOR
RESPONDENT:
D J SAKS
Instructed
by:
Larson Falconer Hassan Parsee Inc.
Umhlanga Rocks
Ref: 22/N409/0
Tel: 031 534 1600
c/o: Messenger King
c/o: N Nhlapo
attorneys
Pietermaritzburg
Ref:
Tel: 033 815 1355