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[2021] ZAGPJHC 815
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Nexus Connection (SA) (Pty) Ltd and Others v Liquid Telecommunications Holdings South Africa (Pty) Ltd and Another (44235/2020) [2021] ZAGPJHC 815 (28 July 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 44235/2020
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED:
NO
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).