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[2015] ZAGPPHC 349
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Botswana Teachers' Union v Indumiso Outsourcing (Pty) Ltd (22366/2014) [2015] ZAGPPHC 349 (20 May 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
(
GAUTENG
DIVISION, PRETORIA
)
CASE
NO: 22366/2014
DATE:
20 MAY 2015
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
IN
THE MATTER BETWEEN
BOTSWANA
TEACHERS’
UNION
.................................................................................
APPLICANT
AND
INDUMISO
OUTSOURCING (PTY)
LTD
..................................................................
RESPONDENT
JUDGMENT
TOLMAY,
J
:
INTRODUCTION
AND FACTUAL BACKGROUND
[1]
The applicant brought an application in terms of sec 3(2) of the
Arbitration Act, 42 of 1965 (“the Act”) that an
arbitration agreement concluded between the parties be set aside and
that the arbitration between the parties be terminated.
[2]
During April 2012 the respondent served a statement of claim on the
applicant claiming payment in the amount of R540 209-83,
being
damages which the respondent alleged it suffered as a result of the
applicant’s breach of contract.
[3]
The aforesaid claim arises from a written agreement entered into on
21 November 2011, the relevant terms of which were
inter alia
:
3.1
A joint venture company, Benefits Enterprises (Pty) Ltd (“Benefits”)
,
would be established in order to exploit certain business
opportunities in the alternative housing market within the Republic
of South Africa as well as neighbouring countries;
3.2
the applicant would provide all
information required to implement the turnaround strategy; transform
the manner of operation to
follow strict business rules and
corporate governance; dedicate resources to participate fully in
Benefits and identify all business
opportunities;
3.3
the respondent would provide the initial
funding for Benefits; implement process improvement programmes and
provide advice on
the best investment instruments for Benefits;
3.4
the parties agreed to resolve any dispute
through mutual consultation and if the dispute remained unresolved
same will be referred
to arbitration.
[4]
Pursuant to the agreement the respondent advanced a loan to Benefits
in an amount of R540 209-83
as initial
funding.
[5]
The respondent in its statement of case alleged that:
5.1
The applicant repudiated the agreement, which
repudiation was accepted by the respondent.
5.2
As a direct and reasonably foreseeable
result of the applicant's breach, which breach amounted to a
repudiation of the agreement
5.2.1
Benefits was not able to conduct business
or to generate income;
5.2.2
the amount contributed by the respondent to
the funding of Benefits was expended to no benefit to the respondent,
or to the applicant,
or Benefits;
5.2.3
Benefits is not able to repay the amount of R540 209,83, or any
amount, to the respondent.
5.3
Had the applicant not repudiated the agreement as set out above, the
said amount contributed by the respondent would have resulted
in a
profit accruing to Benefits, alternatively Benefits would have earned
a profit and/or possessed sufficient assets, enabling
it to repay the
aforesaid loan to the respondent.
5.4
In the premises:
5.4.1
the respondent suffered damages in an amount equivalent to the
amount contributed by it to Benefits; and
5.4.2
the applicant is liable to the respondent
in an amount of R540 209,83 in respect of such damages, which amount
is due, owing and
payable.
[6]
The applicant filed a statement of defence and inter alia raised the
special plea of non-joinder of Benefits.
[7]
After considering written and oral submissions on the special plea
the arbitrator issued a written award on 22 August 2013 and
in this
award the arbitrator ruled that the arbitration agreement was
concluded between applicant and respondent only, that Benefits
was
not a party to the arbitration
agreement and that it could accordingly not be joined
to the
arbitration proceedings. The special plea of non-joinder was
consequently dismissed.
[8]
Subsequently the arbitration proceedings have not yet proceeded any
further and applicant launched this application.
THE
APPLICABLE LEGAL PRINCIPLES
[9]
Section 3(2) of the Act provides as follows:
“
(2)
The court may at any time on the application of any party to an
arbitration agreement, on good cause shown –
(a)
set aside the arbitration agreement; or
(b)
order that any particular dispute referred to in the arbitration
agreement shall not be referred to arbitration; or
(c)
order that the arbitration agreement shall cease to have effect with
reference to any dispute referred.”
[10]
Sec 3(2) provides the Court with a wide power to on good cause shown
set aside an arbitration agreement
[1]
.
The
onus
to show good cause is not easily discharged. The following was said
in this regard in
Lancaster
v Wallace
[2]
:
“
The
onus is not easily discharged. There are certain advantages, such as
finality, privacy, a judex of one’s own choice, and
avoiding
delays through having to await one’s turn on the roll of trial
cases, which a party to an arbitration may wish
to retain; and one
who has contracted to allow his opponent those advantages will not
readily be absolved from his undertaking.
Rhodesia Railways v
Macintosh,
1932 A.D. 359
at p 375; Schietekat & Naumov, 1936 (1)
P.H. A36; Metallurgical & Commercial Consultants, case, supra”
[11]
A Court has a discretion to set aside an arbitration agreement but
the Court should exercise such discretion judicially and
only when a
very strong case has been made out, as was stated in
Universiteit
an Stellenbosch v J A Louw Bpk
[3]
:
“
…
it is
undesirable for any court to attempt to define with any degree of
precision, what circumstances would constitute a “very
strong
case”. In Metallurgical and Commercial Consultants (Pty) Ltd v
Metal Sales Co (Pty) Ltd 1971(2) SA 338 (W) Colman
J at 391H refers
to English authorities which say: “there should be ‘compelling
reasons’ for refusing to hold
a party to his contract to have a
dispute resolved by arbitration”.
[12]
As a result a Court must determine on an evaluation of the
circumstances of each particular case whether the
onus
has
indeed been discharged.
[13]
Our Courts have found good cause is a phrase of wide import and it
will require a Court to consider the merits of each case
in order to
achieve a just and equitable result
[4]
.
[14]
The pertinent question that needs answering is what would constitute
such good cause. This question was considered by our Courts
and it
was found that the Court can terminate an arbitration under the
following circumstances:
(a)
where all the parties to the dispute are not parties to the
arbitration agreement with the result that there may be a
multiplicity
of proceedings with the danger of conflicting decisions
and increased costs
[5]
;
(b)
where a defendant’s counterclaim affects third parties who are
not subjected to the provisions of the arbitration agreement
and in
respect of which the arbitrator had no power of investigating
[6]
.
[15]
This question was also considered in
in
the matter of
Halifax
Overseas Freighters Ltd v Rasno Export; Technoprominport
and
Polskie
Linie Oceaniczne PPW
[7]
,
Justice McNair considered four factors before ruling whether the
parties should not be held to the contract to arbitrate, namely:
15.1
the substantial risk of quite inconsistent findings of fact by two
different tribunals;
15.2
difficult questions of law may arise together
with the high degree of probability that these same questions
of law would
come to the court on a special case;
15.3
some of the parties concerned were not subject to the arbitration
clause; and
15.4
time, expense and costs that would be saved to a very substantial
degree by insisting that the whole of these disputes between
the
parties be disposed of in one set of proceedings.
[16]
I do not understand the aforesaid to be a
numerus clausus
of
circumstances and I am of the view that in each case the Court will
have to consider the facts to determine whether the
onus
to show good cause has been discharged which would justify the Court
to exercise its discretion and to terminate the arbitration.
APPLICATION
OF THE LAW OF THE FACTS IN THIS CASE
[17]
Benefits was initially cited as a second defendant in the statement
of claim, but was later removed by respondent as respondent
was of
the view that Benefits had no direct or substantial interest to the
proceedings and was furthermore not bound to the arbitration
clause.
[18]
In its statement of claim the respondent alleges that it advanced a
loan to Benefits as initial funding. Respondent goes further
and
alleges that Benefits is unable to repay the amount of the loan or
any amount to the respondent. Respondent alleges that Benefits
would
have earned a profit and/or possessed sufficient assets enabling it
to repay the loan, had applicant not repudiated the agreement.
From
the aforesaid it is clear that Benefits played a pivotal role in the
origin and development of the cause of action and it
follows that
evidence from Benefits and relevant to Benefits will be required to
prove the claim.
[19]
The applicant’s contention is that the arbitrator will be
called upon to make factual findings against Benefits, without
Benefits being a party before him and without Benefits having the
opportunity to cross-examine witnesses of the respondent or to
present any evidence to advance its own case.
[20]
The applicant alleges that Benefits needs to be joined as it has a
direct and substantial interest therein.
The
general principle was enunciated in the matter of
Amalgamated
Engineering Union v Minister of Labour
:
[8]
“
Indeed
it seems clear to me that the Court has consistently refrained from
dealing with issues in which a third party may have a
direct and
substantial interest without either having that party joined in the
suit or, if the circumstances of the case admit
such a course, taking
other adequate steps to ensure that its judgment will not
prejudicially affect that party’s interests.”
[21]
In
Van
der Walt v Saffy
;
[9]
the following was said which may also be of some importance:
“
Is
die huurder van die aangrensende perseel dan `n person ‘directly
and substantially interested’ in die uitreiking
van `n
verklarende bevel? Afgesien van die regtelike posisie blyk dit nodig
te wees om die huurder van die teekamer saam te voeg
as `n party tot
die verrigtinge omdat dit uit die stukke voor die Hof blyk dat die
teenswoordige partye angstig is om, sover doenlik,
die regte van al
die betrokke persone te bepaal om sodoende die moontlikheid van
veelvuldige prosesse en gedinge uit te skakel
of te vermy. As die Hof
dus met enige diskresie beklee is, sou ek dit as `n redelike
uitoefening daarvan beskou dat die huurder
van die teekamer ook as `n
party voor die Hof moet verskyn, Volgens reg ook ag ek die huurder
van die teekamer as `n person ‘directly
and substantially
interested’.”
[22]
In
Henri
Viljoen (Pty) Ltd v Awerbuch Brothers
[10]
it was found that a sub- lessee had no legal interest in the contract
between a lessor and a lessee. In my view the facts of this
case is
distinguishable from the aforementioned matter, as
in
casu
Benefit’s alleged inability to pay resulted in the cause of
action. There is consequently a direct nexus between Benefits
and the
cause of action, which was not the case in that matter.
[23]
It is also of importance to consider what was said in
Gordon
v Department of Health, Kwazulu-Natal
[11]
:
“
[9]
... The issue in our matter, as it is in any non-joinder dispute, is
whether the party sought to be joined has a direct and
substantial
interest in the matter. The test is whether a party that is alleged
to be a necessary party, has a legal interest in
the subject-matter,
which may be affected prejudicially by the judgment of the court in
the proceedings concerned. In the Amalgamated
Engineering Union case
(supra) it was found that 'the question of joinder should . . . not
depend on the nature of the subject-matter
. . . but . . . on the
manner in which, and the extent to which, the court's order may
affect the interests of third parties'.
The court formulated the
approach as, first, to consider whether the third party would have
locus standi to claim relief concerning
the same subject-matter, and
then to examine whether a situation could arise in which, because the
third party had not been joined,
any order the court might make would
not be res judicata against him, entitling him to approach the courts
again concerning the
same subject-matter and possibly obtain an order
irreconcilable with the order made in the first instance. This has
been found
to mean that if the order or 'judgment sought cannot be
sustained and carried into effect without necessarily prejudicing the
interests' of a party or parties not joined in the proceedings, then
that party or parties have a legal interest in the matter
and must
be joined”.
[24]
In this matter Benefits was the recipient of the loan and is
according to the respondent unable to pay it back. Only as a
result
of Benefit’s failure did the claim against the applicant arose.
It seems clear to me that factual and legal findings
against
Benefits are essential to the determination of the dispute between
the parties. It is also interesting to note that the
Court in the
aforementioned matter, whilst determining a direct and substantial
interest considered the possibility of multiplicity
of actions to be
a relevant factor to determine the issue at hand.
[25]
In my view Benefits has a legal interest in the subject matter, which
may be affected prejudicially by the judgment on the
proceedings. I
say it because the respondent's claim for damages against the
applicant arises, only because Benefits became unable
to pay the
loan, allegedly because of applicant’s breach of the agreement.
As long as Benefits was able to repay the loan,
the claim for
damages against the applicant did not arise. The findings that (1)
Benefits is liable towards the respondent and
(2) is unable to pay,
are accordingly a
sine qua non
for
the applicant's liability towards the respondent.
[26]
It therefore follows that Benefits is a necessary party to the
proceedings between the applicant and the respondent. In my
view the
arbitration cannot practically proceed without Benefits being joined
as a party thereto, but as Benefits can’t
be joined in the
arbitration proceedings that option is out of the question. The
logical conclusion then is that for the matter
to effectively proceed
Benefits needs to be joined and the matter will have to proceed in a
Court of law.
[27]
Applicant’s further contention is that if the arbitrator finds
in favour of the respondent on the basis that Benefits
is liable to
repay its loan towards respondent, but is unable to do so and that
applicant is therefore liable to repay the loan,
applicant will have
a counter-claim against Benefits.
[28]
Due to the fact that Benefits is not a party to the arbitration any
claim that needs to be instituted will have to be instituted
in a
court of law, applicant contends that this will lead to a duplication
of proceedings.
[29]
The respondent contends that since the purported cancellation of the
agreement, the applicant has been in
de
facto
control of Benefits. The
respondent further contends that in practise no litigation will ensue
between the applicant and Benefits
if Benefits were to be become
liable towards the applicant. This is based on the allegation that
the applicant is in a position
to ensure that Benefits pay any
amount owing to it since the applicant is in control of Benefits.
[30]
Applicant on the other hand contends that a distinction must be drawn
between administrative control and the joinder of a
party to
proceedings where a judgment is
res
judicata
against such a party. Although
the applicant might be in control of Benefits, from an administrative
perspective, Benefits has
not filed any notice to abide in the
proceedings. Any judgment will accordingly not be
res
judicata
against Benefits merely
because the applicant is in
de facto
control of Benefits.
[31]
Benefits remain a separate legal entity with all the legal
consequences and rights that flow from that. In my view this can’t
be merely ignored by the Court at this point in time. Irrespective of
who is in administrative control of Benefits it remains
a distinct
and separate legal entity. It will be legally unsound to disregard
this fact and to pay undue consideration to who is
in control of
Benefits.
[32]
Respondent also raised the point that Benefits is a company
registered in Botswana, consequently Benefits is a foreign company
and South African Courts will not have jurisdiction over Benefits and
no effective order can be granted against Benefits by a
South
African Court
[12]
.
[33]
It must be noted that the parties in the agreement consented
irrevocably to the jurisdictions of the South Gauteng High Court
and
Botswana. I am of the view that any question pertaining to a
potential lack of jurisdiction over Benefits is equally speculative
and premature and should not be determinative of the success of the
application. One should keep in mind that applicant is also
a
foreign company, who consented to a South African court’s
jurisdiction. Benefits could still submit to the jurisdiction
of this
Court. In light of all the circumstances the Court can’t on
this basis dismiss the application.
CONCLUSION
[34]
The applicant did show good cause for the arbitration agreement to be
set aside due to the fact that:
(a)
all parties to the dispute are not parties
to the arbitration agreement;
(b)
there exists a very real possibility of
multiplicity of proceedings with the danger of conflicting decisions
and increased costs;
(c)
the applicant’s potential
counter-claim affects a third pray that is not party to the
arbitration agreement; and
(d)
the arbitration cannot proceed effectively
without Benefits being either a party to it or being obliged to
present witnesses if
so required.
[35]
I am of the view that in the light of all the facts and in the
exercise of my discretion that the applicant has discharged
the onus
that good cause has been shown for this Court to intervene and set
aside the arbitration agreement.
[36]
Consequently I make the flowing order:
36.1
The arbitration agreement concluded between the parties is set
aside;
36.2
The arbitration agreement concluded between the parties shall cease
to have effect with reference to the dispute referred to
arbitration;
36.3
The arbitration between the parties shall terminate; and
36.4
The respondent is ordered to pay the costs of this application.
__________________
R
G TOLMAY
JUDGE
OF THE HIGH COURT
[1]
IMATU
V Northern Pretoria Metropolitan Substructure 1999(2) SA 234 on 237
[2]
Lancaster
v Wallace N O 1975(1) SA 833 (WLD) on 847 A - B, See also
Metallurgical & Commercial Consultants (Pty) Ltd v Metal
Sales
Co (Pty) Ltd 1971(2) SA 388 (W) at 391, Sera V De Wet 1974(2) SA 645
(T) at 650
[3]
1983(4)
SA 321 A at 334 A, See also De Lange v Presiding Bishop, Methodist
Church of S.A. 2015(1) SA 106 (SCA)
[4]
South
African Forestry Co Ltd V York Timbers Ltd 2003(1) SA 331 (SCA) at p
14, Universiteit van Stellenbosch,
supra
,
De Lange,
supra
[5]
Metallurgical
& Commercial Consultants (Pty) Ltd V Metal Sales Co (Pty) Ltd
supra
,
at p 393 – 394, See also Yorigami Maritime Construction v
Nissho-Iwai 1997(4) SA 682 (CPD) 693 F – 694 B, Universiteit
van Stellenbosch v J A Louw,
supra
on 335 G – 336 D, 342, 344 B-C
[6]
Ramsden,
The Law of Arbitration, p 108, Welihockyi and Others v Advtech &
Others 2003(6) 737 (WLD) on 756 A – D, see
also Sera V De Wet
supra, p 653 G - H
[7]
(The "Pine Hill") 1958 (2) Lloyd's List Law Reports 146 at
p 151
[8]
1949 (3) SA 637 (A)
[9]
1950 (2) SA 578
(O) at 581
[10]
1953 (2) SA 151
(O) at 165 – 171
[11]
2008(6)
522 (SCA)
[12]
Gallo Africa v Sting Music (Pty) Ltd 2010(6) SA 329 (SCA) par 10