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[2021] ZAGPJHC 118
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Nexus Connection SA (Pty) Lty and Others v Liquid Telecommunications Holdings SA (Pty) Ltd and Another (44235/2020) [2021] ZAGPJHC 118 (28 July 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 44235/2020
NOT REPORTABLE
NOT OF INTEREST TO OTHER
JUDGES
NOT REVISED
28 JULY 2021
In
the matter between:
NEXUS
CONNECTION (SA) (PTY)
LTD
First
Applicant
SEPCO
COMMUNICATIONS (PTY)
LTD
Second
Applicant
VSNL
SNOSPV PTE
LTD
Third
Applicant
and
LIQUID
TELECOMMUNICATIONS HOLDINGS
First
Respondent
SOUTH AFRICA (PTY) LTD
BERNARD
KATZ
Second
Respondent
JUDGMENT
Delivered:
By transmission to the parties via email and
uploading onto Case Lines
the Judgment is deemed
to be delivered. The date for hand-down is deemed to be
28 July 2021
SENYATSI
J:
[1] This
is an opposed application to review and set aside the determination
made by an accounting expert appointed
by the parties to determine
various disputed issues regarding ongoing arbitration proceedings.
[2] The
applicants are the defendants in the arbitration proceedings and the
first respondent is the claimant.
The second respondent is not
opposing the application and he elected to abide by the court’s
decision. Consequently, no relief
is sought against him.
[3] The
parties entered into a sale agreement which provided for arbitration
in case of disputes. Three arbitrators
were appointed to preside over
the arbitration. These are Messrs M.D Kuper SC, A Grautschin SC and
CD Loxton SC. Loxton SC was
later substituted by Mr D Fine SC due to
scheduling conflicts.
[4] The
parties separated certain issues at the arbitration proceedings and
these were to be heard on 19 November
2020 after the statements of
claim and defence were finalised. The separated issues included the
first respondent’s alleged
purchase price adjustment claim and
the merits of the unaccrued creditors
[5]
Before
the arbitration hearing, the applicants delivered an expert witness
statement prepared by Mr A Felet (“Mr Felet”)
in which he
disputed the inclusion of certain line items as unaccrued creditors
in the first respondent's amended claim.
The statement was
rebutted by Mr. C Domoney (“Mr Domoney”) on behalf of the
first respondent and purported to explain
why line items disputed by
Felet in his report were allegedly correctly classified as unaccrued
creditors.
[6]
The
arbitration proceedings did not proceed as scheduled on 19 November
2020 but were instead postponed by agreement between the
parties to
11 June 2021. The parties consequently agreed to refer the issue of
whether the first respondent's line items described
in the amended
claim were indeed correctly identified as unaccrued creditors as of
10 February 2017. Barnard Katz (“Mr
Katz”), who is
the second respondent was jointly appointed as accountant expert and
the disputed line items of the amended
claim were referred to him for
determination. The terms of reference were duly agreed to between the
parties and were sent to Katz
on 23 November 2020.
[7]
The
terms of reference (“Mandate”) were crafted as follows:
“
1.
Barnard
Katz is appointed as an umpire to determine:
1.1.
whether
those items on annexure “X” hereto, which are placed in
issue by Mr. Felet, were accrued creditors as at 10
February 2017
("the Closing Date") being based on the documents And
witness statements and explanations to be provided
to the umpire, and
using the decision tree methodology provided in the report of Mr
Felet, viz that the goods and services were:
1.1.1.
provided
on or prior to Closing Date;
1.1.2.
not
paid for prior to Closing Date and were paid for after closing date;
1.1.3.
not
already accounted for in the Closing
Statement.
1.2.
whether
the R25 million Homix provision was included as liability,
specifically as part of the R50 million purchase price adjustment,
in
the Closing Statement (and thus deducted in determining the Price).
2.
For
the purposes of the umpire’s determination the following will
be made available to the umpire:
2.1.
the
pleadings;
2.2.
the
witness statements bundle;
2.3.
arbitration
bundles A and B.
3.
The
umpire will apply the following principles in order to arrive at his
decision:
3.1.
the
first respondent Bears the onus of proof and in the event that the
umpire is undecided on a particular item listed on annexure
“X”,
that item will be resolved against the first respondent;
3.2.
proof
will be required by way of documentary evidence.
4.
In
the event that either party wishes to use a document that has not
been discovered, they will be obliged to provide it to the
other side
at least 24 hours in advance of a meeting referred to below.
5.
A
meeting will take place between the umpire and representatives of the
parties, viz Mr Nel (re: the Hormix provision) and Prof
Weiner and Mr
Domoney (re: unaccrued creditors) and Mr Felet. Each party will
appoint one spokesperson to address the issue(s)
placed before the
umpire, to ensure balance in the procedure... subject to the
procedure set out above the umpire will determine
his own procedure
for reaching a decision.
6.
In
the interest of expediency, the umpire is required to make his
decision in writing within two days of the meeting.
7.
The
determination by the umpire will be final and binding on the
parties.”
[8]
Upon
receipt of the Mandate, Mr Katz sent an email to both parties' legal
representatives and stated that his understanding was
that he was
going to listen to the two sides who will be required to justify and
prove their respective claims. This understanding
was promptly
corrected by the applicant's legal representative and she restated
the mandate to Mr Katz.
[9]
The
meeting took place as provided for in the mandate on 30 November 2020
between the first respondents’ expert witness, Professor
Wainer
(“Prof Wainer”) and the first respondent's two factual
witnesses Mr Domoney and Mr F Nel (“Mr Nel”)
and the
applicant's expert Mr Felet. The first respondent sent a previously
undiscovered and undisclosed document as permitted
in terms of
paragraph 4 of the Mandate in support of its claim to Katz and the
applicant's experts more than 24 hours before the
meeting.
[10]
The
applicant avers that contrary to the Mandate, during the course of
the meeting and after discussion uncertain of the items on
Annexure
"X", Mr Katz requested the first respondents' witnesses to
produce additional documentation in support of its
claim, namely
copies of the three invoices listed an audit fee provision, schedule
previously submitted by Mr Domoney; a full breakdown
of trade
payables as at 31 January 2017; a full breakdown of the break cost
provision disclosed in the closing statement; the breakdown
of the
project accruals relating to the Vodacom Irene Farm Villages project
and a full breakdown of the operating lease accrual's
outstanding BB1
accruals and the BB1 cost of sales accruals as at 31 January 2017,
which documentation would provide evidence for
the BB Infraco CDH,
Deloitte, Shred-It, SBD, Webber Wentzel and Power Minster Electrical
Contractor line item referred to in Annexure
“X”. The
documentation was to be produced after the conclusion of the meeting
and would be discussed at a further meeting
to be convened by Mr
Katz.
[11]
The
applicant contends that this was contrary to the provisions of the
mandate, it should be remembered that all documentation had
been
discovered at the arbitration which was ongoing and the undiscovered
documentation had only been made available to the other
side more
than 24 hours prior to the scheduled meeting with the expert. This
was in line with the provisions of Mandate, namely,
paragraph 4.
[12]
When
Mr Felet felt aggrieved by Mr Katz at the meeting and expressed his
views on the process Mr Katz was embarking upon, which
he argued was
not in line with the Mandate, he was advised that he would be given
an opportunity to consider additional documentation
and comment
thereon. A further meeting was to be arranged by Mr Katz with all the
experts once the additional documentation required
was at hand.
[13]
As
a consequence of the developments, the applicant's legal
representatives directed an email to Mr Katz and advised him that he
was not entitled to allow the first respondent to produce further
documentation to prove line items if he was undecided on these
issues
at the time of the meeting in light of what the Mandate provided
which is that those line items must be decided against
the first
respondent if not documentary proof exists at the time of the
meeting. Mr Katz was also not entitled to hold a second
meeting
because the Mandate contemplated only one meeting, so continued the
email. Mr Katz was requested to render his determination
within two
days of the meeting held as provided in the Mandate.
[14]
The
first respondent responded on behalf of Mr Katz, through their mail
dated, 30 November 2020 that it disagreed with the approach
as set
out in [13] but no reasons were provided for the disagreement. Mr
Katz also responded and advised that he did not entirely
agree with
the applicant's record that there were several alleged unaccrued
creditors items, including BB Infraco the CDH payment
and the
Deloitte fees, where the first respondent was unable to provide the
required documentary proof at the meeting and support
of these
claims. The applicants contend that Mr Katz did not provide reasons
for his disagreement. Mr Katz also confirmed that
he did ask for
additional documentary evidence and invited Mr Felet to do likewise.
[15]
In
spite of the objections against additional documentation, the first
respondent emailed additional documentation on 1 December
2020 and Mr
Felet was copied thereto but not the applicants' attorneys. Mr Katz
then failed to call a further meeting and raised
various objections
to the applicant's emails. Mr Katz reached a decision on 2 December
2020.
[16]
The
decision by Mr Katz led to a litany of emails exchanges between the
parties legal representatives and Mr Katz. It is clear from
the
emails that the applicant's attorneys objected to the determination
by Mr Katz especially that the determination was reached
notwithstanding that the applicant, had placed in dispute Mr Katz's
alleged entitlement to request and consider the additional
documentation. When a determination was made the disputed issue had
not yet been resolved.
[17]
In
an answer to the complaint by the applicants, the first respondent
contends that Mr Felet was given an opportunity to submit
additional
documentation to Mr Katz and he failed to do just that. The first
respondent further contends that Mr Katz was within
his rights to ask
for additional documentation to assist him to make a determination. I
disagree with this contention as it is
not supported by any provision
in the Mandate. The Mandate states that the parties are to prove
their claims based on the documentation
made available at the
meeting. The Mandate further states that if the expert is undecided,
the indecision will go against the first
respondent in respect of the
line item where the expert is undecided.
[18]
The
issue in my respectful view is whether Mr Katz acted within his money
when he called for additional documentation related to
the line items
specified by him and if not whether his determination and to be
reviewed and set aside.
[19]
In
Transnet
National Ports Authority v Reit Investments (Pty) Ltd and Another
[1]
the Supreme Court of Appeal
had an opportunity to consider the mandate of an expert when
performing his or her functions. The Court
held that “once
given a mandate, it is not open to the expert to disregard the
parties explicit instructions and, on a frolic
of his own, have
regard to the provisions of clause three of the lease of which
incidentally he was unaware as neither party had
alerted him to them.
In reaching its conclusion to the contrary, the High Court failed to
see the wood for trees and consequently
committed a fundamental
error. Mr Seota's source of authority was not the notarial lease but
the joint mandate of the parties from
which he was not at liberty to
depart."
I
can add that the Mandate in the instant case was crafted with such
clarity that Mr Katz had no authority to call for additional
documentary evidence.
[20]
The
Transnet
[2]
case also approved
in reference to the arbitration agreement in its decision in
Host
Med Medical Aid Scheme v Thebe la Bophelo Healthcare Marketing and
Consulting(Pty) Ltd and Others
[3]
which stated as follows:
" in my view, it is
clear that the only source of an arbitrator's power is the
arbitration agreement between the parties and
an arbitrator cannot
stray beyond their submission where the parties have expressly
defined and limited the issues, as the parties
have done in this case
to the matters pleaded."
[21]
In
Wright v
Wright and Another
[4]
The court held that:
“
the position of a
referee under section 196
[5]
is,
as High Court correctly found, similar to that of an expert valuator
who only makes factual findings but dissimilar to that
of an
arbitrator who fulfils a quasi-judicial function within the
parameters of the
Arbitration Act 42 of 1965
”.
[22]
It
is also our law that once a determination has been made, it can only
be impugned on narrow grounds.
[23]
In
SA
Breweries Ltd v Shoprite Holdings Ltd
[6]
it was also helped that in general the requirements for a valid
arbitral award are equally applicable to an expert determination.
[7]
In other words, the expert is required to make a determination in
accordance with the process provided in the empowering Mandate.
It is
impermissible in my view for the expert to stray outside of the
process that is regulated by the Mandate.
[24]
A
court will intervene if the expert can be shown to have undertaken
something other than that which the governing mandate allowed
him to
do.
[8]
[25]
As
already stated, when a meeting was called by Mr Katz to make a
determination, all the documentation had been discovered for
evidentiary purposes. There was only one additional documentation
that the first respondent sought to use to prove its amended claim.
The document was disclosed to Mr Felet more than 24 hours before the
scheduled meeting and this was permitted by the Mandate. In
my
respectful view, it was not up to Mr Katz to require one of the
parties to provide him with additional documentation to prove
the
line items on which he could not decide. The eventuality of his
inability to decide was provided for in the Mandate and it
was
clearly to go against the party seeking to prove the line item
concerned, in this case the first respondent.
[26]
Mr
Katz's request after the conclusion of the meeting, which was the
only meeting mandated him by the parties to call upon the first
respondent to provide for additional documentation was outside of his
mandate.
[27]
It
should be remembered that paragraph 3.1. of the Mandate provided that
the first respondent bears the onus of proof and in the
event that
the umpire is undecided on a particular item listed on Annexure "X"
that item will be resolved against the
first respondent. With such
clear language used, Mr Katz as already stated, ought not to have
called for the additional documentation
after the meeting even if he
could not make a determination because that is precisely what the
parties agreed would not happen.
I, therefore, hold the view that by
calling for additional documentation, Mr Katz became partisan,
something he ought to have avoided
at all costs.
[28]
Mr
Katz erred by receiving additional documentation outside of his
mandate and simply ignoring the complaints raised by the applicants
regarding his failure to make a determination after the first meeting
and considering the additional documentation he called for
on his
own. He compounded, in my view, his irregular conduct by ignoring the
contestation raised by the applicants. It makes no
sense why he did
not call for the second meeting but to have considered documentation
submitted after the meeting was in my view
unwarranted and beyond the
scope of his mandate. I can only infer that he realised that the
Mandate provided for only one meeting.
[29]
Mr
Katz also failed, without proper explanation to afford Mr Felet to
provide, his comment, on behalf of the applicant whilst affording
the
same privilege to Prof Wainer, Mr Domoney and Mr Nel. This was in my
view, unfair and prejudicial to the applicants. However,
even if Mr
Felet was given an opportunity to comment on the additional
documentation called for after the meeting by Mr Katz, it
would not
change the irregularity of such request because it was contrary to
the Mandate. I am of the view that the determination
ought to have
been made with documentation as presented to Mr Katz on 30 November
2020.
[30]
It
is my considered view that that the applicants have made out a case.
ORDER
[31]
I
make the following order:
(a)
It
is declared that the second respondent:
(i)
erred
in requesting, allowing and taking into consideration for the
purposes of making his determination issued on 2 December 2020
and
purportedly amended on 4 December 2020 (“the determination”)
additional documentation (“the additional documentation”)
provided to him by the first respondent after the meeting
contemplated in his terms of reference had already taken place on 30
November 2020 (the meeting” ) and;
(ii)
erred
in failing to allow the applicant's expert an opportunity to address
the second respondent with regard to the additional documentation
before rendering the determination;
(b)
The
determination is hereby reviewed and set aside.
(c)
The
second respondent is directed to issue a revised determination
without taking into consideration the additional documentation
within
10 days of the granting of this order;
(d)
The
first respondent is ordered to pay the costs of this application
including the costs of senior counsel.
SENYATSI
ML
Judge
of the High Court of South Africa
Gauteng
Local Division, Johannesburg
REPRESENTATION
Date
of hearing: 18
May 2021
Date
of Judgment: 28
July 2021
Applicants
Counsel: Adv
A Franklin SC
Instructed
by: Bowman
Gilfillan Inc.
1
st
Respondents Counsel: Adv
J.G. Wasserman SC
Adv
C. Robertson
Instructed
by: Cliffe
Dekker Hofmeyer
[1]
(1159/2019)
[2020] ZASCA 129
(13 October 2020)
[2]
Above
[3]
[2007]
ZASCA 163
;
2008 (2) SA 608
(SCA) at para 30
[4]
2015
(1) SA 262
(SCA) para 10
[5]
See
Bekker v RSA Factors 1983 (4) SA 565 (T)
[6]
2008 (1) SA 203
(SCA)
[7]
See
David Butler and Eyvind Finsen Arbitration South Africa Law and
Practice (1993) p260-264
[8]
See
Telcordia Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA).