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[2021] ZAGPJHC 127
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Kalagadi Manganese (Pty) Ltd and Others v Industrial Development Corporation of South Africa Ltd and Others (2020/12468) [2021] ZAGPJHC 127 (22 July 2021)
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2020/12468
REPORTABLE
OF INTEREST TO OTHER
JUDGES
REVISED
22 July 2021
In the matter between:
KALAGADI
MANGANESE (PTY) LTD
First Applicant
KALAHARI
RESOURCES (PTY) LTD
Second Applicant
KGALAGADI
ALLOYS (PTY) LTD
Third Applicant
and
INDUSTRIAL
DEVELOPMENT CORPORATION
First Respondent
OF
SOUTH AFRICA LTD
ABSA
BANK
LTD
Second Respondent
AFRICAN
DEVELOPMENT BANK
Third Respondent
JUDGMENT-
22 JULY 2021
SPILG,
J
INTRODUCTION
1.
The Industrial Development Corporation
(“
the IDC
”)
brought an urgent application to place Kalagadi Manganese (Pty) Ltd
(“
Kalagadi”
)
under business rescue (under case number 10228/2020). Although the
application was struck from the roll as not urgent by Mia J
in May
2020 the IDC continued to pursue it in the ordinary course.
This will be referred to
as the “
BR Application
”
2.
The IDC is both a lender and, pursuant to
the loan, holds a minority shareholder stake in Kalagadi.
The other main
shareholders are Kalahari Resources (Pty) Ltd and Kgalagadi Alloys
(Pty) Ltd which together make up the majority
shareholding
3.
Subsequent to the BR Application, Kalagadi
brought its own application (under case no 12468/2020) to compel the
IDC and other lenders
to accept a restructuring arrangement which it
contended would avert the need for business rescue (“BR”).
A significant
aspect of the proposal was to terminate a mining
contract concluded with Murray & Roberts Construction (“
MRC”)
,
who Kalagadi blamed in part for its situation. This could only be
done with the lenders’ consent. Kalagadi also wanted to
conduct
the mining operations on its own.
Allied relief was sought
which included interdicting the lenders from exercising their
security until the Kalagadi application was
determined.
This will be referred to
as the “
Kalagadi Application
”
4.
The other lenders cited in Kalagadi’s
application are ABSA Bank Ltd and the
African Development Bank,
each of whom oppose the application, as does MRC which is an
interested party.
5.
The IDC then suggested mediation in an
attempt to find a commercially and financially viable solution. This
was accepted and the
parties elected to formalise the mediation
process under the provisions of the then newly implemented Rule 41A
of the Uniform Rules.
This is significant because Kalagadi relies
inter alia
on an alleged non-compliance by the IDC with the termination
requirements of R 41A. It should be added that the parties considered
it unnecessary to involve the other lenders and it appears that they
too were agreeable to this.
6.
In the event, on 18 September 2020 a
mediation agreement was concluded between the IDC and Kalagadi.
7.
Two highly skilled and respected mediators
were appointed; former Deputy Chief Justice Moseneke and former Judge
and senior advocate
John Myburgh.
8.
On 15 November 2020 the IDC purported to
terminate the mediation process. This led to a new application being
brought against it
by Kalagadi and its two other shareholders who
contended that the termination was not in accordance with the
provisions of their
mediation agreement. Absa and ADB were also cited
as respondents. However, on 4 December and without admission the IDC
then again
terminated the mandate after complying, in form at least,
with the termination provisions of the agreement
The purpose of the
application was to achieve two objectives; firstly, to stay the
Kalagadi Application pending the conclusion of
the mediation process;
the other was to direct that the BR application and the Kalagadi
Application be heard together and by the
same Judge.
It is evident that a
short term consequence of granting the latter would be to neutralise
the BR application until the mediation
process was concluded.
This application will be
referred to as the “
Stay Application
”.
9.
By
this stage the following applications were at least filed before the
court;
[1]
a.
the main Business Rescue Application
brought by the IDC in respect of Kalagadi. This application is
challenged not only on its own
merits but by a substantive separate
application for the adoption of a business plan proposed by Kalagadi
and its other two shareholders
which I have referred to as the
Kalagadi Application;
b.
the more recent application brought
by Kalagadi in order to stay the court determination of both earlier
proceedings pending the
outcome of a R 41A mediated resolution and to
consolidate the hearing of both the BR application and the compulsory
adoption of
the business plan proposed by Kalagadi and its majority
shareholders.
10.
Since the case appeared to be bogged down
and because of its complexities the matter was referred to the
Commercial Court for adjudication.
11.
The first order of business was therefore
to determine the Stay Application (i.e. to stay all other proceedings
between the parties
pending the outcome of mediation) and to decide
whether the BR Application should be determined together with the
Kalagadi Application.
12.
During the course of case managing the
hearing of the two applications a further twist in the saga occurred
when the IDC purported
to terminate the court sanctioned R 41A
mediation.
Kalagadi and its two
other shareholders then brought a substantive application to declare
that the termination of the mediation
process was in bad faith. The
application was not academic because, if the court finds that the IDC
mediated in bad faith, then
this may bolster Kalagadi’s
position with regard to one of its substantive defences to the BR
application.
13.
However that issue could not be determined
before another dispute was resolved. Kalagadi contended that it was
entitled to rely,
in support of its contention that the mediation
process was held or was terminated in bad faith, on certain
correspondence and
other documents which arose during the mediation
process. The IDC resisted the introduction of such evidence on the
grounds of
confidentiality, not only by reference to the nature of
mediation but also because the parties had expressly agreed that
these
documents were not capable of disclosure save for proving the
existence of any agreement that may have eventuated.
14.
The confidentiality issue was dealt with in
a judgment delivered on 8 February 2021. The order reads:
1.
The following documents in
unredacted form will also form part of the evidential material before
the court when it hears the parties
on whether the applicants have a
cause of action or defence in law or in fact based on the allegations
that the IDC mediated in
bad faith;
a.
The “Record of Discussion”
document of 22 September 2020
b.
Items 9, 10, 19 and 21 on the Index.
They comprise correspondence by the legal representatives,
respectively dated 15 October 2020
from Werksmans Attorneys to
ENSafrica, a reply on the same date from ENS to Werksmans, an email
from Cliffe Dekker Hofmeyr to ENS
of4 December 2020 and a letter
dated 10 December 2020 from ENS to the joint mediators.
c.
The Board Minutes of 13 November
2020 and 21 January 2021.
2.
Publication of each of the documents
identified in the previous paragraph (“the affected documents”)
or any reference
to their contents shall be embargoed pending the
outcome of the decision as to whether in law or in fact the
applicants have a
sustainable cause of action or defence based on the
allegation that the IDC mediated in bad faith
3.
None of the parties or their legal
representatives shall cause to be published or disseminated any of
the affected documents or
their contents save by uploading them onto
CaseLines and by circulation to the other parties to the litigation
and to the judge
via his registrar.
4.
It shall be the responsibility of
the parties and the senior attorney engaged in the litigation on
behalf of the respective parties
to take adequate steps to ensure
that the contents of paras 2 and 3 of this order are complied with
and adequate measures are put
in place to prevent publication.
5.
The orders in paras 2 to 4 shall be
subject to reconsideration once the court has determined the issues
identified in para 2.
6.
The IDC shall pay the wasted costs
of the hearing on 15 November 2020 but the scale on which such costs
are to be paid are reserved
7.
The costs of the hearing of 30
January 2021 will be determined together with the decision on the
issue identified in para 2
15.
Subsequently, and after the relevant
documents were produced in unredacted form the court heard argument
on;
a.
whether Kalagadi had a sustainable cause of
action or defence either in law or in fact based on the allegation
that the IDC mediated
in bad faith;
b.
whether the BR application and the Kalagadi
Application (which it will be recalled is to compel the BR to accept
Kalagadi’s
business plan) be heard together and before the same
judge.
MEDIATING IN BAD FAITH
16.
Two fundamental considerations arise when
considering the duties, if any, imposed on parties to a mediation.
Each stems from the
voluntary nature of the process.
17.
The first is that parties may come into a
mediation with preconceived ideas which may never be shaken. That, it
seems to me, cannot
be equated with bad faith: If each party believes
that the other cannot be trusted and the mediators cannot overcome
that stumbling
block then no amount of reassurance or the provision
of alternate forms of security for guaranteeing performance is going
to change
that, whereas appreciating the downside of not finding an
alternate solution may. But again, it is difficult to envisage how
running
the risk of adverse consequences where there exists a
deep-rooted mistrust of any deal that might be brokered can amount to
bad
faith.
18.
It appears evident that the concept of bad
faith bargaining in labour relations matters cannot be simply
transplanted into the mediation
framework. The question then is
whether there is a legally enforceable obligation to be receptive to
a proposal put, to at least
consider it in good faith, and if so,
whether there are any legal consequence if a party does not.
This will inevitably be
reduced to whether there can be such a thing as a reasonable proposal
that cannot be rejected without a
reasonable explanation and,
borrowing from administrative law, whether the explanation is
rational; if so, then why in a purely
business relationship not
legislated for is it not enough to say that I cannot trust the other
party to keep its word?
19.
All the parties made submissions which did
not go much beyond positional statements as to whether there was a
juridical concept
of bad faith mediation attracting consequences in
one form or another and if so what the test might be. This is readily
understandable
considering the embryonic stage of our Rule 41A
mediation process and the paucity of case law or literature on the
specific topic.
The difficulty faced by
the court is that, precisely because of the novelty of the points
raised, any decision would require a far
deeper understanding of the
impact that holding a party to a standard of good faith mediation may
have and the criteria which needs
to be satisfied if a cause of
action or defence can be founded on bad faith mediation (which I will
refer to broadly as sanctionable
bad faith mediation).
20.
It was therefore necessary to undertake
research before feeling comfortable in giving this decision which
covers not only the concept
of bad faith mediation but also the
confidentiality of documents originating during the course of the
mediation.
21.
I suggest that the type of issues which
surface and would require determination reveal the chasm between
legal proceedings and negotiations
which must be conducted under law
between employer and employee on the one hand and mediation on the
other. Mediation accepts that
parties may come with intractable
positions which may be rooted in something quite unrelated to the
legal or factual issues they
have chosen to define, or which have
arisen, in the actual litigation between them.
The mediation process
seeks to help the parties find each other and move away from the
cause of the litigation. The process may
take quite imaginative
forms, may still involve one party outmaneuvering the other or using
its superior bargaining position which
in turn results in the other
submitting to a poor settlement, albeit preferable to a possible
adverse court outcome. The mediator
is not there to determine what is
fair. The mediator seeks to facilitate a resolution to the dispute
between the parties in a non-adversarial
and non-judgmental way. A
mediation process is not about negotiating the legal position of the
parties as set out in court papers.
It is about finding a way out of
the deadlock by exploring possible solutions which may have no
bearing on the actual issues before
the court but will bring about
their resolution in a non-adversarial way.
Mediation
– some relevant concepts
22.
Rule 41A (1) provides the following working
definition of mediation:
“
a
voluntary process entered into by agreement between the parties to a
dispute, in which an impartial and independent person, the
mediator,
assists the parties to either resolve the dispute between them, or
identify issues upon which agreement can be reached,
or explore areas
of compromise, or generate options to resolve the dispute, or clarify
priorities, by facilitating discussions
between the parties and
assisting them in their negotiations to resolve the dispute."
23.
Rule 41A (6) identifies a further attribute
built into the process:
(6) Except as provided
by law, or discoverable in terms of the Rules or agreed between the
parties, all communications and disclosures,
whether oral or written,
made at mediation proceedings shall be confidential and inadmissible
in evidence.
24.
The four pillars of mediation identified by
Rule 41A are;
a.
A voluntary non-binding non-prescriptive
dispute resolution process;
b.
The terms of the process to be adopted are
those agreed upon by the parties;
c.
The mediator facilitates the process to
enable the parties to themselves find a solution and makes no
decision on the merits nor
imposes a settlement on them;
d.
The process is confidential.
25.
The foundation to these principles is that,
unlike dispute resolutions by court or arbitration which takes the
process and resolution
out of the hands of the parties, mediation
empowers the parties in that they are in control of the process.
Intrinsic to empowering
them and enabling the mediator to fulfill his or her function, the
parties must be able to speak frankly
and possibly expose weaknesses
while the mediator must be able to secure the parties’ trust
and confidence, particularly
where it may be desirable to caucus
separately. Only through this openness can options be explored and
ways suggested of dealing
with underlying motivations, embedded
conceptions or otherwise recognising obstacles and their underlying
cause in order to assist
the parties in getting past no (because of
seemingly intractable positions or open mistrust).
26.
Mediation
has been said by an author who is experienced in this field to be
“
premised
upon the intention that by providing disputing parties with a process
that is confidential, voluntary, adaptable to the
needs and interests
of the parties, and within party control, a more satisfying, durable,
and efficient resolution of disputes
may be achieved.”
[2]
27.
Consolidating the learnings of two leading
authors in the field, a practicing mediator wrote:
Traditionally,
mediation is recognized as a facilitative device appropriate for
resolving disputes between parties wishing to preserve
an existing
relationship. The mediation process itself attempts to facilitate
communication between parties through a structured,
confidential
process conducted by a neutral third party (mediator) wherein parties
can clarify the disputed issues, identify underlying
interests and
explore possible resolutions. Since the parties ultimately craft the
solution and terms (self-determination), mediation
provides a more
flexible process where by the parties can reach mutual satisfaction
from creative remedies that may not be available
through traditional
litigation, or that would not have the ability to preserve the
existing relationship. Perhaps the most notable
distinction between
mediation and litigated resolution is that mediation attempts to
structure and preserve the resolution around
the relationships
between the parties, something that litigated resolution lacks in any
consideration
.
[3]
Rule 41A
28.
Superimposed over ordinary voluntary
mediation where a party can withdraw at any stage without potentially
attracting any adverse
consequence, is a judicially sanctioned R41A
procedure which is directed at requiring parties to consider a
non-adversarial resolution
to a dispute which is already before the
courts. Whether they must do so in a constructive manner or whether
the consequence of
non-constructive engagement simply leads to
adverse cost consequences is in general terms to be gathered from an
understanding
of R 41A read as a whole, its underlying purpose and
the nature of mediation.
29.
It therefore appears advisable to set out
the provisions of R41A in full, highlighting some of the more
significant passages for
the present exercise:
41A.
Mediation as a dispute resolution mechanism.
(1) In this rule
"dispute"
means the subject matter of litigation between parties, or an aspect
thereof.
"mediation"
means a
voluntary process entered into by agreement
between
the parties to a dispute, in which an impartial and independent
person, the mediator,
assists the parties
to either resolve
the dispute between them, or identify issues upon which agreement can
be reached, or explore areas of compromise,
or generate options to
resolve the dispute, or clarify priorities,
by facilitating
discussions between the parties and assisting them in their
negotiations to resolve the dispute
.
(2) (a) In every new
action or application proceeding, the plaintiff or applicant shall,
together with the summons or combined summons
or notice of motion,
serve on each defendant or respondent a notice indicating whether
such plaintiff or applicant agrees to or
opposes referral of the
dispute to mediation.
(b) A defendant or
respondent shall, when delivering a notice of intention to defend or
a notice of intention to oppose, or at any
time thereafter, but not
later than the delivery of a plea or answering affidavit, serve on
each plaintiff or applicant or the
plaintiff's or applicant's
attorneys, a notice indicating whether such defendant or respondent
agrees to or opposes referral of
the dispute to mediation.
(c) The notices
referred to in paragraphs (a) and (b) shall be substantially in
accordance with Form 27 of the First Schedule and
shall
clearly
and concisely indicate the reasons for such party's belief that the
dispute is or is not capable of being mediated
.
(d)
Subject to the
provisions of subrule (9) (b) the notices referred to in this subrule
shall be of a without prejudice
and shall not be filed with the
registrar.
(3) (a)
Notwithstanding the provisions of subrule (2
), the parties may at
any stage before judgment, agree to refer the dispute between them to
mediation
: Provided that where the trial or opposed application
has commenced the parties shall obtain the leave of the court.
(b) A Judge, or a Case
Management Judge referred to in rule 37A or the court may at any
stage before judgment
direct the parties to consider referral
of a dispute to mediation, whereupon the parties may agree to refer
the dispute to mediation.
(4) Where a dispute is
referred to mediation
(a) the parties shall
deliver a joint signed minute recording their election to refer the
dispute to mediation;
(b) the parties shall
prior to the commencement of mediation proceedings enter into an
agreement to mediate;
(c) the time limits
prescribed by the Rules for the delivery of pleadings and notices and
the filing of affidavits or the taking
of any step shall be
suspended
for every party to the dispute
from the date of signature of the
minute referred to in paragraph (a) to the time of conclusion of
mediation
:
Provided that any party to the proceedings who
considers that the suspension of the prescribed time limits is being
abused, may
apply to the court for the upliftment of the suspension
of the prescribed time limits
; and
(d) the
process of
mediation shall be concluded within 30 days
from the date of
signature of the minute referred to in paragraph (a):
Provided
that a Judge or the court may on good cause shown by the parties
extend such time period for completion of the mediation
session
.
(5) (a) In proceedings
where there are multiple parties some of whom are agreeable to
mediation and some of whom are not,
parties who are agreeable to
mediation may proceed to mediation notwithstanding any other party's
refusal to mediate.
(b) The time limits
prescribed for the delivery of pleadings and notices and the filing
of affidavits or the taking of any step
shall be suspended for
every party
from the date of signature of the minute referred to
in subrule (4) (a) to the time of conclusion of mediation by the
parties who
have elected to mediate: Provided that any party to the
proceedings who considers that such suspension of time limits is
being
abused, may apply to the court for the upliftment of such
suspension.
(c) In any matter
where there are multiple issues,
the parties may agree that some
issues be referred to mediation and that the issues remaining in
dispute may proceed to litigation.
(d) If any issue
remains in dispute after mediation, the parties may proceed to
litigation on such issue in dispute.
(6) Except as provided
by law, or discoverable in terms of the Rules or agreed between the
parties,
all communications and disclosures, whether oral or
written, made at mediation proceedings shall be confidential and
inadmissible
in evidence
.
(7) (a) Upon
conclusion of mediation
the parties who engaged in mediation shall
inform the registrar and all other parties by notice that mediation
has been completed
.
(b) Notwithstanding
the failure of parties who have engaged in mediation to deliver the
notice referred to in paragraph (a), the
suspension of the time
limits referred to in subrule (4) (c) shall lapse
unless a
Judge or a court has extended the time limit and notice thereof has
been given to all parties to the proceedings within
5 days of such
order.
(8) (a)
Mediation
shall be deemed to be completed within 30 days from the date of
signature of the joint minute
referred to in subrule (4) (a),
from which date the suspension of the time limits prescribed for the
delivery of pleadings and
notices and the filing of affidavits or the
taking of any step referred to in subrule (4) (c) shall lapse:
Provided that where
mediation is completed before the aforesaid
period of 30 days, the parties who engaged in mediation shall deliver
a notice contemplated
in subrule (7) indicating that mediation has
been completed.
(b)
The parties who
engaged in mediation and the mediator who conducted the mediation
shall within five days of the conclusion of mediation,
issue a joint
minute indicating
(i)
whether full or
partial settlement was reached or whether mediation was not
successful
; and
(ii)
the issues
upon which agreement was reached and which do not require hearing by
the court
.
(c) It shall be the
joint responsibility of the parties who engaged in mediation to file
with the registrar, the minute referred
to in paragraph (b).
(d)
No offer or
tender made without prejudice in terms of this subrule shall be
disclosed to the court at any time before judgment has
been given.
(e) Where the parties
have reached settlement at mediation proceedings the provisions of
rule 41 shall apply mutatis mutandis.
(9) (a) Unless
the parties agree otherwise, liability for the fees of a mediator
shall be borne equally by the parties participating
in mediation.
(b)
When an order
for costs of the action or application is considered, the court may
have regard to the notices referred to in subrule
(2) or any offer or
tender referred to in subrule (8) (d) and any party shall be entitled
to bring such notices or offer or tender
to the attention of the
court
.
30.
The provisions of R 41A accord with
the understood purpose of mediation and its general nature and
functioning. At the expense of
a degree of repetition;
a.
Mediation is encouraged as a form of
alternative dispute resolution. The only sanction for a failed
mediation is the possibility
of an adverse costs order;
b.
Mediation is entirely voluntary and if the
parties, or only two of them, are so minded they are at liberty to
agree on such terms
of mediation as they wish;
c.
An unwilling party cannot be compelled to
mediate. The furthest a court can go is to direct a litigant “
to
consider
” mediation;
d.
Even if some of the parties agree to
mediate other parties in the same litigation are not obliged to fall
in line. They must simply
wait out the period while litigation is
stayed;
e.
Thirty days is a reasonable time to expect
a mediated result failing which the parties must go back to
litigation, unless the court
extends the time on “
good
cause”
- which is likely to occur
where the parties, or court, believe that given more time mediation
may prove successful;
f.
Save in limited circumstances which may be
provided under law, a court cannot be informed of any of the
mediation proceedings prior
to the final outcome of litigation. Even
if settlement has been reached it is unnecessary for the court to be
informed of the terms
(although exceptions are conceivable). It is
only if a part of the case is unresolved through mediation that the
court is to be
informed of the issues which have been resolved- but
this is really a matter of case management or housekeeping so that
the court
will proceed to determine only the outstanding issues.
I believe that on their
own the highlighted portions of the Rule reveal as much.
31.
If a party is not obliged to mediate
then it is difficult to appreciate how under the rule a party who
submits to mediation is obliged
to undertake mediation in a
particular way. The only sanction in terms of Rule 41A is if the
party has abused mediation in order
to delay the litigation.
Sanctionable bad
faith mediation
32.
Is there such a thing as bad faith
mediation? A number of decisions in the Unites States courts confirm
that there is. By way of
illustration:
In
Outar
v. Greno Industries Inc
(2005 WL 2387840 (N.D.N.Y. Sep. 27, 2005)) at 3 the District Court on
appeal said: “
The
Court can be forgiving about a lot of things but not to the extent of
allowing a litigant to refuse to follow the established
procedures of
the Court and the Federal Rules.”
[4]
In
Del
Fuoco v. Wells
[5]
the court sanctioned the
plaintiff and his attorney for bad faith as a result of attempting to
use the mediation process to extort
a settlement. The following
extract, given on appeal, provides a useful insight into the court’s
reasoning:
“
The
use of this case as a vehicle for the bad faith demand clearly
constitutes a litigation abuse defiling the judicial process”
[6]
By
contrast in
Graham
v. Baker
[7]
,
although the court on review found that there was a requirement of
good faith mediation, on the facts of the case this did not
go beyond
a requirement that the parties participate in the mediation session.
33.
As
court assisted mediation became more structured and institutionalised
within the court’s procedural framework due to its
effectiveness in dispute resolution
[8]
,
the need arose to marry the objectives of mediation with procedural
criteria considered necessary in cases where they were undertaken
at
the court’s insistence.
34.
Accordingly, while the decisions of the
United States courts are instructive, it is necessary to recognise
the distinction between
voluntary and coercive mediation.
In this context it is
evident that Rule 41A is constructed on the premise of voluntary
mediation with the parties remaining in control
of the process and
outcome.
35.
Nonetheless it must also be recognised that
under R 41A a court is expected to enquire into the conduct of the
parties during the
mediation process when determining an appropriate
order for costs and it appears inevitable that issues of bad faith
mediation
will be raised and have to be considered alongside those
mentioned in subrule (9)(b) (which is limited to comparing the
outcome
of the case with offers or tenders which may have been made
during the mediation process).
36.
The Unites States cases do however provide
an understanding that bad faith mediation may be divided into conduct
by a party which
does not take into account a state of mind but only
the external acts (culpability based on conduct alone - the
actus
reus
if one will). As the cases
considered earlier demonstrate this
may
manifest itself in a failure to attend
the mediation, a failure to appoint a person who has sufficient
authority to engage in or
conclude a successful mediation, or even a
failure to prepare at all for a mediation session.
There is also the
possibility that the subjective intent of a party may result in that
person being found to have mediated in bad
faith. Under R 41A it is
clear that abusing the mediation process for purposes of delay will
result in it being aborted on an application
to court (and presumably
also extortion or improperly utilising the mediation process to
obtain discovery of otherwise confidential
or privileged
communications).
These situations would
fall neatly into a sub-set of bad faith mediation identified in
Outer
as a refusal to follow established court procedures and rules.
Possibly unprofessional conduct sanctionable by a professional body
or the litigant’s association, ombud or under a governing
statute may similarly constitute bad faith mediation and be subject
to appropriate sanctioning.
37.
The
cases also indicate that there cannot be a hard and fast rule unless,
and this appears significant, there is a clear requirement
when the
parties enter into mediation that the ground rules required certain
conduct or behavior.
[9]
38.
It
therefore appears that barring certain overarching and clearly
understood governing rules or legislation it is essential that
the
parties and their legal representatives have first submitted to a
clearly defined minimum participation requirement on their
part,
before they can be subject to sanction.
[10]
39.
The
type of considerations were identified by Kovach, a summary of which
appears in
Mediation
as a Modern Alternative Dispute Resolution Device
by
Jeff D. Rifleman
[11]
Kovach offers criteria
for good faith definition by discussing generally what good faith is
not and then offering a list of suggested
factors to include in
statutes to aid in the determination of good faith participation. She
asserts that good faith mediation does
not necessitate reaching an
agreement, or that they will be more likely, as mediation can be just
as beneficial and valuable to
the parties even if there is not
agreement.
Additionally, good
faith does not require the parties to have a sincere desire to
resolve the dispute. Nor does it require full
disclosure to the other
party or mediator or that the party conform to any set behavior,
although the parties should attempt to
show behavior showing an
attempt to participate in a meaningful way.
Kovach suggests the
following factors as considerations in constructing a good faith
definition be included in statutes as a way
to present some sort of
objective standard that courts, mediators, lawyers and parties in
dispute can follow to assess good faith
participation:
·
arriving
at the mediation prepared with knowledge of the case both in terms of
the facts and possible solutions;
·
taking
into account the interests of the other parties;
·
having all
necessary decision-makers present at the mediation;
·
engaging
in open and frank discussions about the case or matter in a way that
allows mutual understanding;
·
not lying
when asked specific or direct questions;
·
not
misleading the other side;
·
demonstrating
a willingness to listen to all parties;
·
being
prepared to discuss you interests openly;
·
having a
willingness to explain specific proposals and refusals.””
40.
Rifleman
however cautions
[12]
:
While Kovach’s
suggestions have their merit, the one fact that these cannot address
is a party’s mental unwillingness
to participate or the ability
for the decision maker to determine the degree to which the party
believes they have attempted to
participate or their willingness to
forego mediation in favor of a potentially more costly and risky
litigation process. No matter
whether lawmakers address mandatory
participation determination by a ‘meaningful participation’
standard, or ‘good
faith’ standard, or some other
criteria to define and to demonstrate compliance with mandatory
mediation, it is obvious that
some definition and review standard has
not yet reached universal acceptance.”
The author adds;
“
In
addition, concerns that address bad faith participants who act in
their own interest to disrupt or avoid the benefits of mandatory
mediation, and the sanctions imposed on well-meaning parties who
attempt to minimally participate or choose not to participate
in
favor of traditional litigation are areas for further consideration
when law makers attempt to construct mandatory mediation
requirements”
41.
It is evident that R 41A encourages
mediation through a mild-mannered approach, with only a cost sanction
at the end of litigation
and an aborting of the process if there is
abuse.
The Rule does not provide
a basis for coercion nor lays down any clearly prescribed
requirements. Indeed, at best a court at this
stage can only
encourage the parties to mediate by requiring a reluctant party to
“
consider”
mediation.
Confidentiality
42.
Inextricably tied up with the question of
bad faith mediation is the confidentiality of the documents which
came into existence
during the mediation process. A finding on that
must inform the way the court deals with the arguments raised in the
judgment.
43.
There is obviously a tension between the
right of a fair hearing where all relevant evidence must be placed
before the court and
a party’s agreement to abide by the
confidentiality provisions of an agreement.
44.
Rule 41A itself acknowledges that there may
be instances where the law recognises an exception to a
confidentiality provision. Such
law includes the common law, which
clearly has had insufficient time to develop in relation to the field
of mediation and has yet
to fully flesh out the practical
considerations which may adversely impact on the proper functioning
of mediation, the inhibiting
effect it may have on the way mediators
conduct themselves, caucus and the like.
45.
While it is evident that the question of
whether the parties did reach a settlement and its terms is an
obvious illustration of
when the events which occurred and the
documents demonstrating consensus are relevant, it does not
necessarily touch on the methodology
applied by the mediator or any
of the processes following, barring the ultimate alleged final set of
proposals which either constitute
a consummated settlement or not.
46.
There is however a
via
media
in relation to allegations of bad
faith mediation. A court can have regard to the documents through
what is termed a judicial peek
and afford the parties an opportunity
to argue on them, but for the purpose of the issue at hand only. In
that way the fair trial
principle is respected while confidentiality
is maintained since only the court would be added to the circle of
those privy to
the documentation.
47.
A number of cases in the United States have
considered the confidentiality provisions in mediation agreements or
applicable legislation.
Generally there is a reluctance to open up
the process to the dissemination of the documents. The starting point
is that it is
destructive of the mediation process and inhibits the
functioning of the mediator and the frankness of engagement by the
parties
if they have to look over their shoulder every time they make
a proposal or engage in seeking a way forward. In this regard there
are a number of instructive cases. In the present case the parties
provided for detailed confidentiality and non-disclosure provisions.
In considering the issue,
sight should not be lost of the fact that confidentiality provisions
are also there for the benefit of
the mediators.
Application of the
facts
48.
I
am satisfied on the papers before me that the issues on which the
parties engaged in the mediation centered around respective
concerns
about corporate governance and the impact any change or failure to
change the corporate structuring may have on three
critical
considerations which weighed with both parties ; namely the
initiative and philosophy which drives Kalagadi, the financial
viability of Kalagadi and the exposure of IDC and any other lender
consequent upon the way in which Kalagadi is governed; both
parties
taking a position with regard to the import and relevance of King IV
on issues of corporate governance.
[13]
49.
I am also satisfied, with respect, that
there were enough opportunities which the mediators utilised to
engage the respective parties
and explore avenues around the impasse.
The very fact that the IDC initiated the mediation and that two
highly skilled mediators
were agreed upon
prima
facie
reflects the intention with which
they approached the mediation.
50.
Kalagadi contends that the manner in which
the IDC terminated the mediation is more pertinent and reflects that
it mediated in bad
faith. I am satisfied that the proposals and
counter-proposals as well as an objective report that was compiled by
Snowden reflect
that an intractable impasse had been reached which
required the assistance of the mediators to unlock if they could. The
simple
matter of it is that they were unable to and that is the
reality. Moreover the efforts of the joint mediators and their own
conclusion
of the mediation process must be respected.
51.
I am unable to find that there was bad
faith mediation on the part of the IDC that can either in fact or in
law be construed as
culpable.
The confidential
documents
52.
Because of the disposal of Kalagadi’s
attack based on bad faith mediation I believe it would offend the
confidential nature
of mediation and the provisions of the mediation
agreement if the court was to now embark on an examination of the
documents or
to allow them into the public domain. The considerations
of confidentiality were dependent in the present case on a favourable
outcome for Kalagadi of the bad faith mediation issue. That has not
eventuated.
53.
My previous order provided for an embargo
on the confidential documents including a redacted version of two
other documents. In
view of my finding the purpose of presenting
those documents has been served and they remain confidential, are
privileged from
disclosure under Rule 41A and there is no reason not
to respect the terms of the parties’ agreement.
54.
Finally on this score, the IDC brought an
application to strike out the Referral of Dispute document. The
document was relevant
to the contentions advanced by Kalagadi
regarding IDC mediating in bad faith. In view of my findings its
purpose has been served
and its contents fall within the
confidentiality provisions of the mediation agreement.
Section 131 of the
Companies Act
55.
There
is another matter I should address. The IDC in bringing its
application for business rescue under
s 131
of the
Companies Act 71
of 2008
relies on each of the three grounds which entitles a court to
place a company under BR, one of which is that it is just and
equitable
to do so for financial reasons.
[14]
56.
Kalagadi
took issue with that, and in its answering affidavit contended that
the IDC is precluded from relying on this ground because
it has
conducted its relationship with Kalagadi in bad faith. It contends
that it is and will continue to operate profitably as
a going concern
and that the IDC is abusing its position as shareholder and lender.
In its argument Kalagadi reminded the IDC that,
as a developmental
finance institution, it is mandated to promote government’s
development agenda “
by
supporting pathfinding Broad-based Black Economic Empowerment …
ventures.
”
[15]
57.
Kalagadi details the basis for its
contention of bad faith on the part of the IDC in attempting to usurp
Kalagadi for reasons which
it must explain by;
a.
meeting directly with MRC when requested by
Kalagadi to consent to terminating the mining contract and belatedly
giving only conditional
consent to Kalagadi’s request to such
termination;
b.
compelling
Kalagadi to change its executive management by requiring its
executive chairperson to become a non-executive chair and
within two
months have the Board jointly appoint a new or confirm the existing
Chief Executive Officer of the company in consultation
with the
IDC;
[16]
c.
betraying
its mandate as a development finance institution.
[17]
58.
The finding that the IDC was not mediating
in bad faith cannot therefore impact on the question of whether
outside the mediation
it had done so as Kalagadi contends in its
papers.
DIRECTING JOINT
HEARING OF THE BR AND KALAGADI APPLICATIONS
59.
The lenders oppose the joint hearing of the
BR Application and the Kalagadi Application.
60.
I accept that there is no application to
consolidate the two but rather an application that they both be heard
by the same judge
at a joint hearing. Neither the IDC nor the other
lenders or MRC have indicated the prejudice that may be suffered if
this was
done or if a formal consolidation was not ordered. It is not
uncommon where it is expedient to hear two cases which may not
involve
the same direct parties nor precisely the same relief that
they be placed before the same judge for hearing, if only because the
substantive adjudication of the one involves a consideration of the
factors raised in the other and it may be more convenient not
to
require their regurgitation simply for the sake of form.
61.
The issue between the IDC and any affected
parties (as defined in Chapter 6 of the
Companies Act) on
the one
hand and Kalagadi and its shareholders on the other revolves around
the appropriate business plan, which of necessity would
include a
restructuring proposal in one form or another, and what should be put
up. No one has suggested that the Kalagadi Application
can be knocked
out as a technicality. Accordingly, a court is in the best position
to determine what business plan or restructuring
proposal if any,
should be put forward, how that can be competently achieved both in
conformity with the
Companies Act and
in a manner that will achieve
the ultimate objectives of Chapter 6. The possible outcomes are many
but if only one application
is considered to the exclusion of the
other then the possibility of staggered appeals loom with consequent
delays
COSTS
62.
The issues are self-contained and do not
require the outcome of the hearing in the main application before
they can be determined.
63.
A special order for costs is not justified
as many of the issues were
res nova
ORDER
64.
It is therefore ordered that:
1.
The IDC application to strike out
the Record of Discussion is dismissed;
2.
The application to declare that the
IDC acted in bad faith in regard to the mediation process is
dismissed;
3.
The business rescue application
under case number 10228/2020 and the Kalagadi application under case
number 12468/2020 are to be
heard jointly before the same judge;
4.
Subject to para 5 Kalagadi is to pay
to the IDC and the other parties who opposed these applications two
thirds of the costs on
a party and party scale, such costs to include
the costs of two counsel where applicable;
5.
Excluded from the reckoning of costs
in para 4, are;
a.
the costs of the abortive
hearings of 15 November 2020;
b.
The costs of the hearing of 30
January 2020
which are to be borne
by the IDC on the party and party scale, such costs to include the
costs of two counsel
6.
The hearing of the business rescue
application and the Kalagadi application will take place before Judge
Spilg on any suitable date
or dates during the week of 27 September
2021 unless any party makes representations for alternate
arrangements regarding the hearing.
(Signed)
SPILG, J
DATE OF
JUDGMENT:
22 July
2021
FOR 1st
APPLICANT:
Adv. IV Maleka SC
Adv. M
Salijkazana
Harris
Nupen Molebatsi Inc.
FOR 2
nd
and
3
rd
APPLICANTS:
Adv. A Gautschi SC
Adv. N
Luthuli
Adv. O
Motlhasedi
Harris
Nupen Molebatsi Inc
FOR 1
st
RESPONDENT:
Adv. M van der Nest SC
Cliffe
Dekker Hofmeyr
FOR 2
nd
and
3
rd
RESPONDENTS:
Adv. A Franklin SC
Webber
Wentzel
FOR 5
th
RESPONDENT:
Adv. L van Tonder SC
Tiefenthaler
Attorneys Inc.
[1]
At
this stage Kalagadi were still contending that the mediation had not
been properly terminated and that BR application remained
stayed
under R 41A
[2]
Prof
Maureen A. Weston in her article “
Checks
on Participant Conduct in Compulsory ADR: Reconciling the Tension in
the Need for Good-Faith Participation, Autonomy, and
Confidentiality”,
76 IND. L.J. 591, 592 (2001).
[3]
http://www.riflemanlaw.com/practice-areas/mediation/mediation-confidentiality-bad-faith-enforceability
Jeff D Rifleman
“
Mediation as a Modern Alternative Dispute Resolution
Device – Issues and Discussion on Confidentiality,
Participation Requirements
and Enforcement of Agreements”
(2008) citing Kimberlee K. Kovach,
Mediation: Principles and
Practice
(3d ed. 2004) at 14 and 15, and Kent L. Brown,
Comment,
Confidentiality in Mediation: Status and Implications
, 1991 J.
Disp. Resol. 307, 309.
[4]
Id
[5]
2005
WL 2291720, at 1 (M.D.Fla. Sept. 20, 2005)
[6]
Id at 10
[7]
447
N.W.2d 397 (Iowa 1989) at 400-401
[8]
This was identified by
Chief
Justice Burger of the United States Supreme Court in an address
delivered at the 1976 Roscoe Pound Conference.
[9]
See
Samara Zimmerman’s article; Judges
Gone
Wild: Why breaking the mediation confidentiality privilege for
acting in “bad faith” should be reevaluated in
court-ordered mandatory mediation.
Cardoza
Journal of Conflict Resolution [Vol. 11:353] at pp 384:
“
While
mediation and its promise of confidentiality should not shelter a
party whose behavior distorts the essence of the process,
the
subjective interpretation of “good faith” leaves a party
with lack of notice of expected conduct and exposed
to potential
liability without forewarning. If there is going to be a mediation
exception to confidentiality for acting in bad
faith, such an
exception needs to be formalized objectively and procedures
instituted to preserve the integrity and principles
of the mediation
process.”
[10]
Id
[11]
See
earlier footnote;
Mediation
as a Modern Alternative Dispute Resolution Device – Issues and
Discussion
on
Confidentiality, Participation Requirements and Enforcement of
Agreements
(2008) at pp19-20.
[12]
Id at 20-21
[13]
King
IV Report on Corporate Governance for South Africa 2016 (1 November
2016)
[14]
Section 131(4)(a)
provides that;
“
(4)
After considering an application in terms of subsection (1), the
court may—
(a)
make an order placing the company under supervision and commencing
business rescue proceedings, if
the court is satisfied that—
(i)
the company is financially
distressed;
(ii)
the company has failed to pay
over any amount in terms of an
obligation under or in terms of a public regulation, or contract,
with respect to employment-related
matters; or
(iii)
it is otherwise just and equitable
to do so for financial reasons,
and
there is a reasonable prospect for rescuing the company; or
[15]
Answering affidavit, para 170 et sec
[16]
Id para 232 et sec
[17]
Id para 249 et sec