Canton Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker Hattingh N O (479/2020) [2021] ZASCA 163; 2022 (4) SA 420 (SCA) (1 December 2021)

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[2021] ZASCA 163
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Canton Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker Hattingh N O (479/2020) [2021] ZASCA 163; 2022 (4) SA 420 (SCA) (1 December 2021)

THE SUPREME COURT
OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 479/2020
In
the matter between:
CANTON
TRADING 17 (PTY) LTD T/A
CUBE
ARCHITECTS

APPELLANT
and
FANTI BEKKER
HATTINGH N O

RESPONDENT
Neutral
citation:
Canton
Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker Hattingh N O
(479/2020)
[2021] ZASCA 163
(1 December 2021)
Coram:
SALDULKER, MATHOPO and MOCUMIE JJA and PHATSHOANE and
UNTERHALTER AJJA.
Heard
:
20 August 2021
Delivered:
This judgment was handed down
electronically by circulation to the parties' legal representatives
by email, publication on the Supreme
Court of Appeal website and
release to SAFLII. The date and time for hand down is deemed to be
09h45 on 1 December 2021.
Summary:
Arbitration – who decides whether the
parties consented to refer a dispute to arbitration when there is a
dispute of fact
as to their consent – separability and
competence-competence – the discretion of the high court to
adjudicate the question of
the existence of an arbitration agreement
– the requirements for the application of a robust approach to
adjudicate disputes of
facts not met.
ORDER
On appeal from
:
Free State Division of the High Court, Bloemfontein (
Naidoo
ADJP and Daffue and Reinders JJ sitting as court of appeal.)
1
The appeal is upheld with costs.
2
The order of the full court is set aside
and substituted with the following order:
‘
(
a
)
The appeal is upheld with costs.
(
b
)
The order of the high court is set aside and substituted with the
following order:
“
The application
is remitted to the high court to determine whether the application
should be referred to evidence, and if so on what
terms, or whether
the application should be dismissed”.’
JUDGMENT
Mocumie JA and
Unterhalter AJA (Saldulker and Mathopo JJA concurring.)
[1]
The central question in this appeal is whether the Free State
Division of the High Court
(the high court) was correct to order the
appellant (Canton Trading) to submit certain disputes to arbitration.
[2]
Canton Trading appealed the high court’s order to the full court of
the Free State
Division of the High Court (the full court). The full
court dismissed its appeal. Canton Trading appeals that order, with
the special
leave of this Court.
[3]
The background facts are as follows. Canton Trading is a firm of
architects. During
2011, the respondent, the Qwaha Trust (the Trust),
commenced its use of the professional services of Canton Trading.
Canton Trading
rendered professional architectural services to the
Trust in respect of various projects. Some seven projects were
undertaken.
[4]
During 2013, the respondent wished to expand the Itau Mill on plot 47
Qwaggafontein,
Bloemfontein (the project) and approached Canton
Trading to engage its services for the project. Canton Trading orally
accepted the
offer to do so. As the principal agent of the Trust, on
5 February 2014, Canton Trading negotiated and concluded a building
agreement
referred to as the Joint Building Contracts Committee
Series 2000 Standard Building Agreement (the JBCC agreement) with a
building
contractor, Royal Anthem Investments 12 CC (the contractor).
Canton Trading was appointed as the Trust’s principal agent under
clause 42.4 of the JBCC agreement. When the JBCC agreement was
concluded, Mr Johan Louw (identified as the project manager) signed
the JBCC agreement, representing Canton Trading as the principal
agent and duly appointed representative of the Trust. A document,
styled the ‘Appointment of Professional Service Provider’ (PSP),
was prepared by Canton Trading’s attorneys and presented to
the
Trust during March 2014. The PSP was not signed by either of the
parties. Nonetheless, throughout the project, Canton Trading
rendered
services and was paid by the Trust upon presentation of its invoices.
[5]
Canton Trading acted as the Trust’s principal agent until 2 August
2014. The JBCC
agreement was terminated on the instructions of the
Trust on the basis of defective work performed by the contractor. The
Trust took
up the position that Canton Trading had failed to perform
its duties as its principal agent and issued a letter of demand in
which
it invited Canton Trading to agree to the appointment of a
mediator, failing which, in terms of clause 23 of the PSP, the
dispute
was to be submitted for mediation and arbitration.
[6]
Correspondence was exchanged between the attorneys of the parties. In
a letter dated
15 September 2017, the attorneys acting for Canton
Trading acknowledged receipt of the demand of the Trust, and
responded that they
were considering their client’s position and
would revert.  On 2 November 2017, the attorneys for the Trust
reminded Canton
Trading’s attorneys that a dispute had been raised
in terms of clause 23.6 of the PSP and that Canton Trading had failed
to confirm
that the matter was to be referred to a mediator. They
afforded Canton Trading a period of 21 (twenty-one) days, as
envisaged in
clause 23.6 of the PSP, to confirm the appointment of
either Judge Hancke and or Judge Cilliers (both retired judges), to
act as
the arbitrator and for the matter to be referred to
arbitration.
[7]
On 7 November 2017, Canton Trading’s attorneys informed the Trust
that their client
was not prepared to mediate and that Canton Trading
was in principle prepared to proceed with the arbitration process. On
20 November
2017, and in response to the letter of 2 November 2017,
Canton Trading’s attorneys informed the Trust that they were
satisfied
with the appointment of Judge Hancke as the arbitrator and
requested that the Trust’s attorneys prepare a draft arbitration
agreement.
The Trust’s attorneys responded on 29 November 2017.
They indicated that Judge Hancke had agreed to serve as arbitrator
and enclosed
a draft arbitration agreement to be signed by Canton
Trading, in the event that the draft was satisfactory.
[8]
On 5 December 2017, Canton Trading’s attorneys responded. They
indicated that the
attorney who had been working on the matter had
resigned and another attorney had been assigned to deal with the
matter; they were
happy with the appointment of Judge Hancke as the
arbitrator and requested a pre-arbitration meeting on 24 January
2018. On 7 December
2017, the parties confirmed and agreed that the
pre-arbitration meeting was to be held without the arbitrator.
[9]
On 24 January 2018, the pre-arbitration meeting was held. At this
meeting, the arbitration
agreement was discussed and the parties
agreed to the appointment of Judge Hancke, his remuneration and their
liability for payment.
During the meeting, Canton Trading
specifically requested that the following paragraph be inserted into
the pre-arbitration agreement:
‘
The pre-arbitration agreement
is further subject to the condition that the Defendant (Canton
Trading) must obtain the approval/consent
of the Defendant’s
insurer (in the event of it being the Defendant’s version that
there is no signed agreement to submit to arbitration)
of the
arbitration agreement.’
[10]
Canton Trading’s attorneys inserted this clause on the
instructions of their client’s insurer.  On 30 January 2018,
Canton
Trading’s attorneys informed the Trust’s attorneys that
they had consulted with their client. Their instructions were that
the
parties had not signed the PSP and that the arbitration provision
in the PSP was therefore unenforceable. They invited the Trust’s
attorneys to issue summons should their client wish to proceed with
the matter. The Trust then afforded Canton Trading seven days
to sign
the amended pre-arbitration agreement. Canton Trading’s attorneys
responded on 26 February 2018. They indicated that Canton
Trading
does not recognise the existence of the arbitration agreement.
[11]
The Trust approached the high court on motion for an order in the
following terms:
‘
(a) That the respondent be
ordered to submit to arbitration to have the disputes set out in the
Arbitration Agreement which is attached
to the applicant’s founding
affidavit as annexure ‘’B’’s adjudicated;
(b)  That the Respondent be
ordered to pay the costs of this application.
(c)  Further and/or
alternative relief.’
[12]
The high court recognised that Canton Trading had set out in its
answering affidavit its version as to
why no agreement had been
concluded to submit any dispute to arbitration. The high court,
nevertheless, decided that it would adopt
what it considered to be
the robust approach referenced in
Fakie
NO
[1]
.
The
high court considered the issue before it to be as follows: ‘The
question therefore revolves around the veracity of the respondent’s
denial, viewed in the light of the evidence as a whole.’ The high
court concluded that ‘the mere fact that the document was never
signed, as has been the case in the past with several contracts since
before 2011 when this one in dispute came into existence, did
not in
the circumstances of this matter, necessarily, lead to the conclusion
that it did not form the basis of the agreement regulating
the
relationship between the parties’. It held furthermore that, ‘the
perceived disputes raised by the respondent as to the existence
and
binding effect of the written document [are] clearly untenable,
palpably implausible and uncreditworthy’. The high court
consequently
found that there was an arbitration agreement concluded
between the parties which had come into existence.
[13]
The high court ordered Canton Trading to submit to arbitration the
disputes set out in the arbitration
agreement, as amended, and that
Canton Trading was to pay the costs of the application. It granted
the following order:
‘
1.    The
arbitration agreement, annexure B to the applicant’s founding
affidavit, is amended by the deletion of
the second paragraph on page
1 thereof as well as part A and the first sentence of Part B on page
3 thereof.
2.
The date of 10 March 2018 in paragraph 7.2 thereof is replaced by the
date of 19 October 2018.
3.    Prayer A of
the notice of motion is granted subject to the amendments in
paragraphs 1 and 2 above.
4.   [The] respondent
[is ordered to] pay the costs of the [application], including the
costs occasioned by the employment
of senior counsel.’
[14]
Canton Trading appealed to the full court and contended that, first,
the high court entered the arena
between the parties and granted
relief not sought. As such, it did not exercise its discretion
judicially and within the parameters
prescribed by the law. Second,
the applicable legal principles in the adjudication of motion
proceedings, namely that motion proceedings
are decided on the
version of the respondent, was not adhered to and the strict
requirements for the application of a robust approach
were not met,
especially in circumstances where neither party sought the
application of such an approach. Third, the Trust had failed
to prove
that there was
animus
contrahendi
.
[15]
The full court did not agree with these contentions and found against
Canton Trading. It held that, ‘where
a party relies on the
provisions of Rule 6(5)(
g
), as the appellant seems to have
done, it is common sense, that the court is called upon to examine
the very dispute in order to
determine whether it creates a genuine
dispute of fact or not.’ The full court held further that the high
court, acting in terms
of Rule 6(5)(
g
), had reasoned
correctly, and exercised one of the permissible options available to
it in terms of the applicable law. The full court
went on to record
that ‘the appellant conceded that a signed agreement was not a
prerequisite for a written document to have a
binding effect. This
concession was properly made, as it is evident from the provisions of
the Arbitration Act 42 [of] 1965, that
it does call for a written
agreement to be signed in order for it to be valid and binding. The
high court undertook an extensive
examination of the respective
versions of the parties as they appear in the papers and found that
the appellant’s denial of the
existence of an agreement was
palpably untrue and not worthy of credence, warranting the rejection
of its version. I am unable to
fault the reasoning or the conclusion
of the court in this respect’. The full court went on to dismiss
the appeal with costs. Thus,
the appeal to this Court.
[16]
Counsel for Canton Trading submitted that the case for the Trust was
delineated in paragraph 4 of its
founding affidavit and later made
clearer in para 2.5 of its replying affidavit: the high court was to
adjudicate upon one issue
only, namely, whether the appellant should
be compelled to submit to arbitration - othing more. Paragraph 4 of
the founding affidavit
reads:
‘
Lest there be any confusion,
the relief referred to
supra
does not constitute relief in terms of which the [a]pplicant seeks to
have any dispute between the parties which has arisen out of
or by
virtue of any agreement between the parties adjudicated. The
[a]pplicant seeks only to compel the Respondent to submit to
arbitration
to have such dispute(s) adjudicated upon by the forum
agreed upon between the parties.’
Para 2.5 of the
replying affidavit reads:
‘
It is therefore respectfully
submitted that the question whether or not a valid arbitration
agreement had been concluded between the
applicant and the respondent
falls squarely within the purview and jurisdiction of the proposed
arbitrator and the applicant therefore
does not move for an order in
terms of which the Court is asked to make a determination in respect
of such question. What the applicant
moves for is solely that the
respondent be compelled to submit to arbitration to have the question
which is referred to above adjudicated
by [an] arbitrator.’
[17]
In its answering affidavit before the high court at para 3 the
appellant stated:
‘
. . . the respondent’s
case and defence [is] that there is no operative and/or binding
and/or enforceable arbitration agreement
in existence between the
applicant and the respondent in terms of which the respondent can be
ordered to submit to arbitration.’
Furthermore, at para
3.6 it states ‘
. . . I emphasise that it is the respondent’s
case and defence that it did not enter into
any
written
agreement
with the applicant with the necessary
animus
contrahendi
to submit any dispute between the applicant and
itself to arbitration.’ (Emphasis added.)
[18]
Counsel for Canton Trading contended that initially neither of the
parties requested the high court to
find whether there was a bona
fide factual dispute as to the existence of the arbitration
agreement. What the Trust sought was an
order compelling Canton
Trading to submit to arbitration. Instead, the high court disregarded
Canton Trading’s evidence. It decided,
without being requested to
do so, that there was no real bona fide dispute of fact which could
not be resolved on the papers. The
contention was made that it was
common cause that there was a dispute of fact as to whether there was
an agreement to arbitrate and
the only question for the high court to
decide was whether that issue should be referred to arbitration.
Instead, the high court
found that an arbitration agreement existed
as between the parties.
[19]
To persuade this Court that the high court exceeded its powers,
counsel for Canton Trading argued that
this Court in
Fisher
and Another v Ramahlele and Others
[2]
set limits within
which a court may exercise its discretion in motion proceedings. The
essence of this submission was to the effect
that, ordinarily, a
court may not
mero
motu
raise
a new issue for adjudication not identified on the papers by the
parties, save where it was a question of law that emerged fully
from
the evidence, it was necessary to decide the matter, and no party was
caused prejudice.
[20]
Counsel for Canton Trading further relied on
Fiona
Trust & Holding Corp and others v Privalov and others
[3]
which he contended
supported the case for the appellant, the court there stated at para
38:
‘
The judge relied on
Ahmed
Al-Naimi v Islamic Press Agency
[2000]
1 Lloyds Rep 522
to
decide as a matter of his discretion that
it
was more convenient for the court to decide the question whether the
charterparties and the arbitration clause were invalidated
by the
alleged bribery of the owners' agents because it was best that the
matter should be decided only once.
If
the matter were truly a matter of his discretion that exercise of it
might well be difficult to criticise, but the discretion of
the court
only arises if there is truly a "question whether there is a
valid arbitration agreement". As we have sought
to explain, once
the separability of the arbitration agreement is accepted, there
cannot be any question but that there is a valid
arbitration
agreement.
Al Naimi
(in which Judge Lloyd's four
options are all set out and approved) was different because in that
case there was a real question as
to whether any arbitration
agreement had come into existence or (perhaps more accurately)
whether the agreement that did exist under
a preceding contract
covered disputes that arose pursuant to a subsequent ad hoc contract.
If there is a contest about whether an
arbitration agreement had come
into existence at all, the court would have a discretion as to
whether to determine that issue itself
but that will not be the case
where there is an overall contract which is said for some reason to
be invalid e.g. for illegality,
misrepresentation or bribery and the
arbitration agreement is merely part of that overall contract. In
these circumstances it is
not necessary to explore further the
various options canvassed by Judge Humphrey Lloyd since we do not
consider that the judge had
the discretion which he thought he had.’
(Emphasis added.)
[21]
In response, counsel for the Trust relied on several authorities of
this Court
[4]
and the
Constitutional Court
[5]
to make the
following submission: the parties had wrongly delineated the legal
issue to be determined by the high court in their papers,
namely, to
compel the appellant to submit to arbitration. For this reason, the
high court was empowered to adopt a robust approach.
The presiding
judge indicated his
prima
facie
view
that the parties had it wrong on the legal issue to be determined,
which view counsel for Canton Trading had also accepted. He
contended
that, to indicate that the parties accepted the course adopted by the
high court, it was placed on record on behalf of
the Trust that it
would abide the decision of the court. The Trust further contended
that Canton Trading had also accepted the approach
which the high
court had proposed to the parties.
[22]
The key issue before this Court was crystalized during argument as
follows. In the face of a dispute
of fact that an agreement existed
to refer disputes between the parties to arbitration, was there any
basis to find that the parties
had agreed to refer to arbitration the
very dispute as to the existence of an agreement to arbitrate? If
that is not what the parties
agreed to, then, was it competent for
the high court to decide the dispute as to whether there was an
agreement to refer the disputes
to arbitration?
[23]
We proceed to
consider whether the parties agreed to refer to arbitration their
dispute as to whether there existed an arbitration
agreement. We
shall reference this dispute as the ‘existence dispute’. If there
was a referral of the ‘existence dispute’
to arbitration, then it
follows that the high court could not decide the existence dispute,
and was in error in doing so.
[24]
We have read the
judgment of Phatshoane AJA (the second judgment). The second judgment
concludes that the parties indeed agreed to
refer the ‘existence
dispute’ to arbitration. The second judgment places emphasis upon
particular provisions of the PSP. The
Trust contended that that the
PSP set out the terms of its agreement with Canton Trading, whereas
Canton Trading denied that this
was so.
[25]
Clause 23 of the PSP provides that certain disputes shall be referred
to mediation, failing which, the
disputes shall be submitted to
arbitration. Clause 23.1, in familiar language, reads as follows:
‘
Any dispute
arising between any of the Parties in regard to: the interpretation
of; or the effect of; or the carrying out of; or any
other matter
arising directly or indirectly out of, this Agreement (“the
Dispute”) shall be referred to a mediator agreed upon
between the
Parties’.
Clause 23.2 goes on
to state that if the parties cannot agree on a mediator or resolve
the dispute by way of mediation, then the dispute
shall be submitted
and decided by arbitration. The following words are then written,
‘Save as set out herein, the arbitration shall
be conducted in
accordance with the rules and regulations of the Arbitration
Foundation of South Africa Limited (AFSA), in force
from time to
time’.
[26]
The second judgment sets out the AFSA rules, in relevant part.
Sub-article 11.2.2 of the commercial rules
of AFSA confer upon the
arbitrator the power ‘to rule on his own jurisdiction, including
rulings on any dispute in regard to the
existence or validity of the
arbitration agreement or the scope thereof.’ Since clause 23.2 of
the PSP requires that an arbitration
must be conducted in accordance
with the AFSA rules, those rules grant a wide power to the arbitrator
to rule on questions of jurisdiction,
including whether an
arbitration agreement exists. This competence, the second judgment
finds, requires a duly appointed arbitrator
and not the courts to
decide whether the PSP constitutes an agreement by the parties to
arbitrate, and hence whether an arbitration
agreement exists.
Therefore, the high court could not determine the existence issue,
and fell into error in doing so.
[27]
This line of reasoning raises important issues as to the competence
of the high court to decide whether
an arbitration agreement has come
into existence, in the face of a dispute between litigants as to
whether this is so.
[28]
In
North
East,
[6]
this Court,
following a line of English cases, recognised that parties may agree
that a dispute pertaining to the validity of an agreement
is to be
determined by way of arbitration, even though the arbitration clause
referring the dispute to arbitration forms part of
the agreement that
is subject to the validity challenge. There is nothing contradictory
in this position. The parties enjoy autonomy
to agree that categories
of dispute arising between them will be submitted to arbitration for
resolution, rather than be determined
by the courts.  Precisely
which disputes are to be submitted to arbitration is a question of
what has been agreed, and the interpretation
of the parties’
written agreement. Generally, the parties intend that all their
disputes will be decided under a unitary jurisdiction,
either by the
courts or by way of arbitration, and not under a bifurcated
jurisdiction, where some disputes are determined by the
courts and
others by submission to arbitration.
[7]
[29]
It follows that the parties may agree that disputes arising as to the
validity or enforceability of an
agreement must be determined by way
of arbitration and not before the courts. The arbitration clause that
gives expression to this
agreement may form part of the written
agreement of which the validity or enforceability is disputed. If the
arbitrators uphold the
challenge to the validity or enforceability of
the agreement, their decision vacates their jurisdiction to decide
any further dispute
arising from the agreement. There is nothing
paradoxical about this outcome. The parties agreed that this
competence was to be conferred
upon the arbitrators. Their exercise
of this competence is precisely what the parties intended.
[30]
This reasoning of the second judgment is predicated upon the premise
that there was an agreement between
the parties as to the disputes
that are to be submitted to arbitration. Those disputes may include
the enforceability and validity
of the agreement. But what if the
very agreement to submit these disputes to arbitration is itself
subject to challenge?
North
East
[8]
affirmed the
following
dictum
in
Heyman
v Darwins Ltd
[9]
,
‘
[i]f
the dispute is as to whether the contract which contains the clause
has ever been entered into at all, that issue cannot go to
arbitration under the clause, for the party that denies he has ever
entered into the contract is thereby denying that he has ever
joined
in the submission.’
[31]
Since the submission of a dispute to arbitration requires the consent
of the parties, if the very agreement
that requires the submission is
challenged on the basis that such agreement never came into
existence, a dispute exists as to whether
there was submission of the
dispute to arbitration at all.  The problem that then arises is
this: who decides the ‘existence
dispute’, the courts or the
arbitrators?
[32]
The question as to who decides whether a dispute goes to arbitration
or remains in the courts is one
of ever greater significance, given
the enhanced role that arbitration enjoys in the resolution of
disputes, both domestically and
in transnational law. This question
may arise at different stages.  As the present matter
illustrates, there may be litigation
at the commencement of a dispute
as to whether the courts should decide the dispute or whether it
should be sent to arbitration.
Sometimes, however, the issue
crystalizes for the first time before the arbitrators. They are asked
to decide whether they enjoy
jurisdiction to hear the dispute.
The arbitrators may determine the issue. Finally, a court may be
called upon to decide whether
the arbitrators correctly assumed
jurisdiction over the dispute, if the arbitrators’ award is taken
on review or enforcement proceedings
are brought.
[33]
There are a large variety of issues that may be raised by a litigant
opposing arbitration at the commencement
of a dispute. It may be said
that the agreement containing the arbitration agreement is invalid or
unenforceable, that no arbitration
agreement came into existence,
that the arbitration agreement is not in writing, that the dispute
does not fall within the scope
of the arbitration agreement or that
the right to arbitration has been waived. This list, although not
exhaustive, is simply illustrative.
A court faced with issues of this
kind will want to steer a course between the discouragement of
time-wasting obstructionism and
protecting a party from being forced
to arbitrate a dispute without their consent.
[34]
Two approaches have been adopted by the courts so as to assist in
deciding challenges to arbitration
that are brought by a litigant at
the commencement of a dispute. The first approach is based on
separability. Ordinarily, the parties
enter into a contract that
contains an arbitration clause. If the challenge is that the contract
is invalid, unenforceable, or, as
here, the contract never came into
existence, then it may appear logical that the arbitration clause
must fail, if the contract falls
to be impugned. But, that is not
inevitably so. The arbitration clause may give expression to the
intention of the parties that the
question of validity,
enforceability or, indeed, the very existence of the main contract,
is to be submitted to arbitration. If that
is how the arbitration
clause is properly interpreted, then the court may be inclined to
conclude that the parties concluded an arbitration
agreement that is
separate from the main agreement. What the parties consented to was
that the arbitrators should determine the question
of the validity or
the existence of the contract, and the court should then give effect
to their consent. Absent a direct challenge
to the validity or
existence of the arbitration clause, the court will in these
circumstances require the parties to submit the existence
or validity
dispute to arbitration.
[35]
The other approach is based on the principle of competence-competence
also known as ‘Kompetenz-Kompetenz’
(referring to its German
origins), or the principle of ‘compétence de la compétence’.
[10]
This
principle has a positive and a negative aspect. The positive aspect
is largely uncontroversial. Arbitrators enjoy the competence
to rule
on their own jurisdiction and are not required to stay their
proceedings to seek judicial guidance. The negative aspect of
the
principle may be formulated as follows. Where the dispute has already
been referred to an arbitrator, the court will not rule
upon the
validity, existence or scope of the arbitration agreement, but will
leave these questions of jurisdiction for the arbitrator
to decide,
at least initially. But, even if the dispute has not yet been
referred to arbitration, the court may be disinclined to
decide the
question of jurisdiction, unless the arbitration agreement is
manifestly void. Once the arbitrator has ruled and rendered
an award,
the courts may finally decide any issue of jurisdiction, if the award
is brought on review or its enforcement is sought.
In this
formulation, the principle of competence-competence gives effect to
the principle of judicial restraint. The jurisdiction
that has most
plainly adopted negative competence-competence is the French Code of
Civil Procedure.
[11]
[36]
While the principle of competence-competence is formulated in
different ways in different jurisdictions;
but it has not been
applied by South African courts
[12]
,
the principle recognises that courts will be inclined to allow the
arbitrator to decide questions of jurisdiction, unless
the challenge
before the court shows that there is a manifest basis to resist the
submission to arbitration. Ultimately, the application
of the
principle is a matter of timing. It does not vacate the court’s
ultimate power to determine the question of an arbitrator’s
jurisdiction, but defers its exercise in favour of allowing the
arbitrator to render an award, including an award on the issue of
jurisdiction. The principle thus favours the facilitation of
arbitration and restricts pre-emptive court challenges to the
jurisdiction
of an arbitrator, save in the clearest of cases. Given
the respect that South African law accords to the autonomy of parties
to agree
to submit their disputes to arbitration, and in line with s
39(1)(
b
)
and (
c
)
of the Constitution of South Africa, there is warrant for South
African courts, in appropriate cases, to consider the application
of
the principle of competence-competence
[13]
.
[37]
In
Zhongji
[14]
,
this
Court found that the arbitration clause was an agreement distinct
from the terms of the agreement of which it formed part. As
in the
present matter, the arbitration clause referenced the AFSA rules
which permitted the arbitrator to decide any dispute regarding
the
existence, validity or interpretation of the arbitration agreement.
The court held that the arbitration agreement must
be given effect to
and it was for the arbitrator to determine the issues of jurisdiction
that had been raised before the high court.
Zhongli
thus
recognised and applied the doctrine of separability so as to enforce
the arbitration agreement.
[38]
What
North East
and
Zhongji
make plain is that the
parties have wide-ranging autonomy to agree that matters concerning
the validity, enforceability and existence
of an agreement shall be
referred to arbitration. If they have consented to such a referral,
then the courts will respect their agreement
and will not decide
these matters. It will be for the arbitrators to do so. And this
holds good, even though the arbitrators will
thereby be deciding upon
their own jurisdiction. An arbitration clause may be found to subsist
separately from the main agreement
of which it forms part, and may
thus be enforced, even if there is a challenge to the validity,
enforceability or existence of the
main agreement. However, where
there is a challenge to the arbitration agreement itself, so as to
put into question the consent of
the parties to have any dispute
submitted to arbitration, the court will have to consider how best to
deal with that challenge. The
court may decide the challenge. But, as
discussed above, the court may also decide that it would be
preferable to decline the invitation
to do so, and under the guidance
of the principle  of competence-competence, allow the
arbitrators the opportunity to first
render an award on the question
of their jurisdiction.
[39]
Turning then to the matter before us, we are in agreement with the
second judgment that, on the papers
before the high court, there was
a thorough-going dispute of fact as to whether the parties had
concluded an agreement on the terms
of the PSP. Canton’s evidence
was not perfunctory, and in the face of that evidence, the high court
could not, on motion, proceed
to decide the matter on the basis of
its assessment of the probabilities.
[40]
This difficulty is compounded by the failure of the high court to
recognise the principles that we have
endeavoured to set out above.
The PSP referred to the AFSA rules, which recognise the wide
jurisdiction of the arbitrator to determine
the existence dispute.
Canton Trading contended that no agreement was concluded embodying
the terms of the PSP, including terms that
reference the commercial
rules of AFSA. The position set out in the answering affidavit of
Canton Trading is that no agreement was
reached with the Trust on the
terms of the PSP. Hence, there was no submission to arbitrate the
‘existence dispute’ on the basis
of the commercial rules of AFSA
that give arbitrators the power to rule on their own jurisdiction,
including any dispute as to the
existence or validity of the
arbitration agreement. The reference to the commercial rules of AFSA
forms part of the PSP which Canton
Trading contended was never agreed
to with the Trust. Once there is a dispute of fact between the
parties on this issue, which we
find to be so for the reasons fully
traversed in the second judgment, the high court was not in a
position to simply enforce the
commercial rules of AFSA and have the
existence dispute determined by an arbitrator under those rules.
Whether the arbitration
clause in the PSP was intended to constitute
a separate agreement that referred the existence dispute to
arbitration cannot be determined
on the papers. That very matter is
disputed on the basis of the contradictory evidence marshalled by the
parties.  Whether the
reference to the commercial rules of AFSA
in the PSP indeed constituted a separate agreement that the parties
concluded to determine
the existence dispute would thus need to be
referred to evidence by a court so as to decide the issue.
[41]
This is where we part company from the second judgment. The second
judgment identifies the dispute of
fact between the parties as to
whether agreement was reached on the terms of the PSP, but goes on to
find that this dispute falls
within the remit of the powers given to
an arbitrator under the commercial rules of AFSA. We find that where
submission to those
very rules is disputed, then we cannot refer the
‘existence dispute’ to an arbitrator under the commercial rules
of AFSA because
it is disputed, on the basis of evidence adduced by
Canton Trading that it consented to any such submission. Put
differently, the
powers of an arbitrator under AFSA’s commercial
rules would permit the determination of the existence dispute, if a
separate agreement
had been concluded between the parties to submit
the existing dispute to such arbitration. But, where there is a
dispute on the evidence
as to whether such submission occurred, a
court may not assume the consent of the parties to a referral which
is disputed.
[42]
If, as we find, the high court was not in a position to find, in the
face of the dispute of fact, that
the parties had concluded a
separate agreement to refer the ‘existence dispute’ to
arbitration, what should the high court have
done then?
[43]
Canton Trading contended that the high court fell into error because
it determined the dispute as to
the existence of the arbitration
agreement when the parties had not moved it to do so. This, contended
Canton Trading, was an impermissible
and unfair exercise of the high
court’s powers. We do not agree. Once the high court had discerned
the dispute of fact as to the
existence of the arbitration agreement,
provided the parties were given proper notice of the high court’s
position, there is no
abuse of discretion if the court then sought to
raise with the parties how best the court should deal with the
dispute. However,
where the high court fell into error was to
undertake an assessment of the probabilities on the evidence before
it and then determine
that there was an agreement on the terms of the
PSP. What was required was a consideration of whether the application
was to be dismissed
or whether the challenge to the existence of the
arbitration agreement would be better determined by way of a referral
to evidence
and the consideration of the issues of separability and
the applicability of the concept of competence-competence.
[15]
The
full court, endorsing as it did the approach of the high court, was
also in error when it dismissed the appeal.
[44]
For these reasons, the following order issues.
1
The appeal is upheld with costs.
2
The order of the full court is set aside
and substituted with the following order:
‘
(
a
)
The appeal is upheld with costs.
(
b
)
The order of the high court is set aside and substituted with the
following order:
“
The application
is remitted to the high court to determine whether the application
should be referred to evidence, and if so on what
terms, or whether
the application should be dismissed”.’
BC
MOCUMIE
JUDGE OF
APPEAL
D UNTERHALTER
ACTING JUDGE
OF APPEAL
[45]
I have read the judgment of my colleagues Mocumie JA and Unterhalter
AJA (main judgment). I am grateful for their recital
of the
background facts, the contentions of the parties and the issues.
It will therefore not be necessary for me
to repeat them save to the extent necessary for present purposes
.
The main judgment concludes that the appeal against the decision of
the full court be upheld with costs. On the view I take, the
appeal
should be upheld in part.
[46]
Properly distilled, two crisp questions arise for consideration in
this appeal. First, whether the high
court had a discretion to
determine the existence of an arbitration agreement between the
parties. Secondly, if it had the discretion,
whether that was
exercised judicially.
[47]
It
has always been recognized that an arbitration agreement does
not necessarily oust the jurisdiction of the courts.
[16]
In
terms of s 3(2)(
b
)
of the Arbitration Act 42 of 1965 (the
Arbitration Act) the
court
may, at any time on the application of any party to an arbitration
agreement, on good cause shown, order that any dispute
referred
to in the arbitration agreement not be referred to arbitration. What
is immediately discernible is that there had been no
application by
any of the parties for an order that any of their disputes ought not
be referred to arbitration.
What
was before the high court was an application by
Mr
Fanti Bekker Hattingh, in his capacity as the trustee of the Qwaha
Trust, the respondent (the Trust), to compel Canton Trading
17 (Pty)
Ltd t/a Cube Architects, the appellant (Canton Trading),
to
submit to arbitration.
Being
an application for injunctive relief, it is apparent that it was not
founded on
s 3(2)(
b
).
[48]
The Trust elected in
its papers, having been so legally advised, to formulate a course in
respect of which its dispute had to be disposed
of in the high court
on these terms:
‘
Lest there be any confusion,
the relief referred to
supra
[an order to compel Canton Trading to submit to arbitration] does not
constitute relief in terms of which the applicant seeks to
have any
dispute between the parties which has arisen out of or by virtue of
any agreement between the parties adjudicated. The applicant
seeks
only to compel the Respondent to submit to arbitration to have such
dispute(s) adjudicated upon by the forum agreed upon between
the
parties.’
At para 49 Mr
Hattingh, the deponent to the Trust founding papers, states:
‘
Be that as it may, the
enforceability of the arbitration clause constitutes a dispute which
falls within the ambit of what the parties
contemplated at the time
of conclusion of the Professional Service Provider Agreement as a
dispute which would be ventilated and
adjudicated upon in
arbitration.’
[49]
Mr Hattingh, in his iteration in reply, stated that the Trust did not
move for an order in terms of which
the court was asked to make a
determination in respect of the existence of the arbitration
agreement. Significantly, he said:
‘
2.3 ...(I)t is generally
accepted by the South African Courts that there is no rational basis
upon which parties to an agreement will
wish to have questions of
validity or enforceability of an agreement determined by one tribunal
(a Court of Law) and questions of
performance arising from the same
agreement decided by another tribunal (an Arbitrator or Arbitration
Tribunal).
2.4
Furthermore, the applicant has been advised that, in light of an
arbitrator’s powers to determine
his or her own jurisdiction in
respect [of] an issue that arises from a referral to arbitration
itself, there exists no reason why
a dispute about whether or not a
claim arising from the Respondents performance in terms of the
agreement between the Applicant and
the Respondent is indeed
arbitrable should not be decided by an arbitrator.
2.5
….(T)he question whether or not a valid arbitration agreement had
been concluded between
the Applicant and Respondent falls squarely
within the purview and jurisdiction of the proposed arbitrator…
95.1
….(T)he Applicant clearly and unequivocally stated that the
Applicant does not seek to have any dispute
between the parties which
has arisen out of or by virtue of any agreement between the parties
adjudicated in these proceedings.’
[50]
In support of its application to compel, the Trust relied on
the
Joint Building Contracts Committee (JBCC) Series 200 Standard
Building Agreement dated 05 February 2014 which the Trust, as the
employer, concluded with Royal Anthem Investment 12 CC (Royal
Anthem), the contractor (the JBCC agreement). At para 1.2 of the
contract
data, employer addendum code 2101-EC, Canton Trading was
employed as a principal agent. The agreement was signed by all the
parties
including Canton Trading as the principal agent. In its
founding papers the Trust made prodigious
recital
of
the dispute settlement procedures
contained in clause 40 of the JBCC agreement which includes
adjudication, mediation or arbitration.
In my view, the agreement
contributes little to its course. The JBCC was to be administered and
or enforced by Canton Trading against
the contractor on behalf of the
Trust. On Canton Trading’s version, which is not seriously
disputed, clause 40 was applicable to
disputes between the employer,
the Trust, and its agents (which would include Canton Trading), on
the one hand, and the contractor
on the other.
[51]
More central to the parties’ opposing positions is a contract
styled an ‘Agreement for the Appointment
of a Professional Service
Provider’ (the PSP agreement), allegedly concluded between the
Trust, as the contractor and Canton Trading
as the service provider.
The PSP agreement was drafted by Canton Trading’s attorneys and
presented to the Trust during March 2014.
Neither Canton Trading nor
the Trust signed this agreement. Clause 23 of this agreement
stipulates, in part, that any dispute arising
between the parties
with regard to the interpretation of or the effect of or the carrying
out of or any other matter arising directly
or indirectly out of the
agreement (the dispute) shall be referred to a mediator agreed upon
between the parties. Where the parties
are unable, either to agree on
a mediator or to resolve the dispute by way of mediation, within 60
days of the dispute having been
raised in writing, then the dispute
shall be submitted to and decided by arbitration. Crucially, for
present purposes, it further
provides that ‘the arbitration shall
be conducted in accordance with the Rules and Regulations of the
Arbitration Foundation of
Southern Africa (AFSA), in force from time
to time.’ In terms of clause 23.5 the parties shall not be
precluded from approaching
any court or competent authority for an
interdict or other injunctive relief of an urgent nature.
[52]
The commercial rules of AFSA,
applicable
to domestic arbitrations, supplement any specific provisions of an
arbitration agreement to arbitrate under the aegis of
or according to
the rules of the foundation, in so far as such specific provisions
are silent on matters provided for in the rules.
[17]
In terms of
sub-article
10.1.2
of the commercial rules:
‘
(I)n
cases where the party cited as defendant disputes that he was a party
to the arbitration agreement, or that the arbitration agreement
is
still valid and binding, or that the claim falls within the terms of
the arbitration agreement, (all of which disputes are hereinafter
referred to as "jurisdictional disputes"), then (unless the
party against whom the jurisdictional dispute is raised, informs
the
arbitrator that he does not wish to proceed until such dispute has
been decided by a court) first decide the jurisdictional disputes,
and, if he decides them against the party raising any or all of such
disputes, then make a ruling for a period for the delivery of
a
statement of defence (if not already delivered) and counterclaim, if
any, in accordance with 6.1.5, and a statement of defence
to any
counterclaim in accordance with 6.4, and then proceed as set out
below.’
Sub-article
11.2.2 provides that the arbitrator shall have the power:
‘
(T)o
rule on his own jurisdiction, including rulings on any dispute in
regard to the existence or validity of the arbitration agreement
or
the scope thereof.’
[53]
in respect of construction arbitrations, if the parties only intend
that AFSA appoint an arbitrator from
its panel, the ‘Unadministered
Rules’ would apply. article 23(1) of those rules provides:
‘
The
Arbitral Tribunal shall have the power to rule on its own
jurisdiction, including any objections with respect to the existence
or validity of the Arbitration Agreement. For that purpose, an
arbitration clause that forms part of a contract shall be treated
as
an agreement independent of the other terms of the contract. A
decision by the Arbitral Tribunal that the contract is a nullity
shall not automatically invalidate the arbitration clause.’
[54]
The high court, in its enquiry, recorded that it became common cause
when the application to compel was
argued, that the question whether
the arbitration agreement was extant had to be considered by the
court. The court did so and came
to the conclusion that the
arbitration agreement was in place. The exercise of this discretion
is a contentious issue in this appeal.
[55]
When parties agree to refer a matter to arbitration, unless the
agreement
provides
otherwise, they implicitly, if not explicitly (and, subject to the
limited power of the high court under
s 3(2)
of the
Arbitration Act),
abandon
the right to litigate in courts of law and accept that
they will be finally bound by the decision of the
arbitrator.
[18]
When
confronted with a jurisdictional objection arbitrators are not
obliged forthwith to throw up their hands and withdraw from the
matter until a court has clarified their jurisdiction.
[19]
The
hallmark of arbitration is that it is an adjudication flowing from
the consent of the parties to the arbitration agreement who
define
the powers of adjudication and are equally free to modify or withdraw
that power at any time by way of further agreement.
[20]
The
remarks by O'Regan ADCJ in
Lufuno
Mphaphuli
[21]
having
considered the international and comparative law are apposite:
‘
Courts
should be careful not to undermine the achievement of the goals of
private arbitration by enlarging their powers of scrutiny
imprudently…’
And
at para 236:
‘…
The
international conventions make clear that the manner of proceeding in
arbitration is to be determined by agreement between the
parties and,
in default of that, by the arbitrator. Thirdly, the process to be
followed should be discerned in the first place from
the terms of
the arbitration agreement itself. Courts should be respectful of
the intentions of the parties in relation to procedure.
In so doing,
they should bear in mind the purposes of private arbitration which
include the fast and cost-effective resolution of
disputes.’
[56]
In
Zhongji,
[22]
this
Court had an occasion to consider whether the high court was correct
in,
inter
alia
,
dismissing an application for a declaratory order that a particular
dispute was ‘arbitrable’, in almost similar circumstances
as the
present, where the respondent disputed, amongst others, having
been
a party to the dispute resolution procedures provided for in the main
agreement.
The
parties had also concluded an interim agreement which did not contain
dispute resolution procedures. In its amended notice of
motion, the
appellant sought declarators that,
inter
alia
,
the respondent was
bound
by the arbitral regime catered for in the main agreement in relation
to disputes in connection with or arising out of the main
agreement
or the execution of the works thereunder.
The
main agreement provided that, unless the parties otherwise agree,
disputes between the parties ‘shall be finally settled under
the
Rules for the Conduct of Arbitrations as published by the Association
of Arbitrators (Southern Africa)’. R
ule
12.1 of the sixth edition of the Rules of the Arbitration Association
applied. It provided that: ‘The arbitrator may decide
any dispute
regarding the existence, validity, or interpretation of the
arbitration agreement and, unless otherwise provided therein,
may
rule on his own jurisdiction to act.’
[57]
In
Zhongji
this Court determined that once the arbitration
tribunal had been duly appointed in terms of the main agreement, the
rules of the
Arbitration Association would give the tribunal itself
jurisdiction to decide the issues which may be raised before it,
including
those which had been raised both in the high court and this
Court. That in light of an arbitrator’s power to determine his or
her
jurisdiction there was no reason why the dispute about whether or
not the claims arising from the appellant’s performance in terms
of
the interim agreement was indeed arbitrable should not be decided by
the arbitration tribunal prior to an application to the high
court. It was held that t
he
process of arbitration had to be respected.
If the high court
were to have pronounced on these issues, it would have acted contrary
to the provisions of the arbitration clause
by determining issues
that are within the auspices of the arbitrator in terms of the
arbitration agreement.
The
arbitration had to be given the opportunity to run its course before
the court considers any application relating thereto.
Accordingly, the appellant’s application to the high court was
premature and perhaps unnecessary.
[58]
Insofar as the PSP agreement was, on the face of it, valid, in
particular clause 23 thereof, which expressly
sets out the
arbitration process, it ought to have been given effect to by the
high court.
The fundamental
error on the part of the high court was to approach the application
on the basis that the dispute on the existence
of the arbitration
agreement meant that the arbitral tribunal had no power to determine
its own jurisdiction. In fairness to the
high court and the full
court, it would appear that the courts’ attention was not drawn to
the provisions of the rules because
none of the courts expressed
themselves on the impact which these rules would exert upon
consideration of the key question. A
n
arbitration clause embodies an agreement that is distinct from the
terms of the agreement of which it forms a part. Sometimes the
fact
that it is embodied in another agreement may affect its validity
because a challenge to the validity of the agreement in which
it is
incorporated is also a challenge to the validity of the arbitration
agreement.  In the absence of such a challenge, however,
the
arbitration agreement must be given effect to in accordance with its
terms.
[23]
[59]
C
lause 23 of
the purported PSP arbitration agreement read with the rules of the
AFSA delineates the powers of the arbitral tribunal,
which includes
the determination of its own arbitral jurisdiction. The high court
ought not to have
mero
motu
arrogated
to itself the power assigned to the arbitrator. By so doing it
interfered with the parties’ contractual autonomy allied
to the
notion of contractual freedom.
Based on the interspersed
negation of the court’s power to interfere, as reflected in the
papers, it ought not to have decided the
point. O
n
the view I take of this matter, the question whether the high court
exercised a discretion and the nature thereof does not arise.
Otherwise stated, the high court had no jurisdiction to determine the
question.
[60]
The
effect
of an order that the high court had no jurisdiction will be that all
the proceedings and orders granted in the application
are to be
regarded as nullities.
[24]
In
a footnote to
MEC
for Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd
t/a Eye & Lazer Institute
[25]
the
Constitutional Court affirmed this principle as follows:
'In
The
Master of the High Court (North Gauteng High Court, Pretoria) v
Motala NO and Others
2012 (3) SA 325
(SCA) the Supreme
Court of Appeal, reaffirming a line of cases more than a century
old, held that judicial decisions issued
without jurisdiction or
without the citation of a necessary party are nullities that a
later court may refuse to enforce (without
the need for a formal
setting-aside by a court of equal standing). This seems paradoxical
but is not. The court, as the fount of
legality, has the means itself
to assert the dividing line between what is lawful and not lawful.
For the court itself to disclaim
a preceding court order that is a
nullity therefore does not risk disorder or self-help.’
[61]
The full court’s conclusion, that the high court ‘acted within
the parameters of the law’, was
factually and legally misdirected.
This should be dispositive of the entire appeal. However, it would be
necessary to turn attention
to the second leg of the enquiry which is
a self-standing issue for adjudication. The argument and the
judgments of the high court
and the full court centred around the
question whether the high court
exercised
its discretion judicially. The
enquiry on this aspect is conducted
on the basis
,
accepting
for
argument’s sake, that the high court had jurisdiction to determine
the question of the existence of the agreement.
[62]
A consideration of the question whether
the
high court exercise
d
its discretion judicially
would require a brief
analysis of the facts. During the early stages of 2014 the Trust
wished to expand the building from which it
operated its business. To
put this into effect, on 5 February 2014, the Trust concluded the
JBCC agreement with Royal Anthem. Canton
Trading, a firm of
architects, was appointed as the principal agent for the project.
During March 2014, a month or so following the
signing of JBCC
agreement, Canton Trading’s attorneys forwarded the PSP agreement
to the Trust which, to reiterate, the parties
did not sign.
[63]
The Trust contends that Canton Trading was negligent in the
performance of its duties. On 2 August 2017
it invoked the
arbitration clause (clause 23 of the PSP agreement) and caused a
letter of demand together with its statement of claim
to be served
upon Canton Trading. In this letter the Trust notified Canton Trading
that it declared a dispute in respect of Canton
Trading’s
incompetent execution of its obligations as the principal agent under
the JBCC agreement. That in terms of clause 23
of the PSP agreement
the dispute had to be referred to mediation failing which
arbitration.
[64]
During the period s
tretching from
11 September 2017 to 7 December 2017 an exchange of correspondence
between the Trust and Canton Trading’s attorneys
ensued. The
following can be distilled from these letters: the unsigned PSP
agreement was forwarded to Canton Trading’s attorney
who promised
to revert on the proposed mediation; the Trust forwarded reminders on
the proposed mediation and eventually accepted
that Canton Trading
resisted mediation; the Trust accordingly suggested that arbitration
be commenced forthwith and proposed two
names of prospective
arbitrators; when this was met with silence on the part of Canton
Trading the Trust put a time-frame within
which Canton Trading had to
revert on the appointment of the arbitrator. Canton Trading’s
attorneys advised the Trust that it was
taking instructions on the
appointment and was prepared ‘in principle’ to proceed to
arbitration; Canton Trading agreed to the
appointment of the
arbitrator.
[65]
A pre-arbitration meeting was held on 24 January 2018 out of which
several disputes of fact emerged on
the papers as regards what was or
was not said during the meeting. The Trust attorneys drew-up a
pre-arbitration agreement on the
basis of what was professed to have
been agreed to between the parties during the pre-arbitration
meeting. Amongst the issues allegedly
agreed to was that Canton
Trading would be afforded an opportunity to file its statement of
response, that the arbitration would
be regulated by the uniform
rules of court not those of the AFSA and that the parties would be
afforded a right to appeal. Canton
Trading is said to have requested
that a conditional clause be inserted in the arbitration agreement as
follows:
‘
The
arbitration is further subject to the condition that the defendant
must obtain the approval/consent of the defendant’s insurer
(in the
event of it being the defendant’s version that there is no signed
agreement to submit to arbitration) of the arbitration
agreement.’
I
interpose that where an offer to submit to arbitration is made, the
acceptance of the offer must be unconditional and unqualified,
failing which there is no proper acceptance and no binding agreement
to go to arbitration.
[26]
[66]
On the Trust’s version, the parties performed fully in terms of the
PSP agreement and submits that
a verbal agreement was reached during
March 2014 on the same terms as set out in the PSP agreement. Canton
Trading had forwarded
its professional fee schedule and invoiced the
Trust for services rendered in terms of the PSP agreement. Payment
was duly honoured.
[67]
Canton Trading, on the other hand, put up an irreconcilable version.
It frequently rendered architectural
services to the Trust on various
projects since 2011 apart from the services rendered during 2014
which form the basis of the present
dispute. The relationship was
governed by verbal agreements. The PSP agreement, it says, was simply
an incomplete template which
was made available to the Trust in
respect of the project in issue. For instance, the documents
containing personnel schedule, the
plan setting out the project, the
scope of work and the pricing data were never completed. It is
undisputed that the fees were negotiated
and agreed upon through
e-mails during the execution of the project. Canton Trading gainsaid
that the parties conducted themselves
in accordance with the contents
of the document prepared by its attorneys.
[68]
Canton Trading avers that even in respect of the previous projects
the standard template would be forwarded
to the Trust without any
written agreement ever being reached between the parties. It
intimates that the deponent to the Trust’s
papers ‘is simply not
a man interested in paper work and as a result it was never possible
to finalise and/or complete a written
document with [the Trust] even
in respect of the previous projects, [that] is to say, to agree on
the terms thereof and/or to finalise
and sign same.’ No written
agreement, it continued, was ever entered into, discussed or
considered including an enforceable arbitration
agreement in terms of
which it could be ordered to submit to arbitration.
[69]
This Court restated the following trite principles in
National
Scrap Metal:
[27]
Where
the high court decides a matter without the benefit of oral evidence,
it has to accept the facts alleged by the respondent unless
they were
so far-fetched, or clearly untenable, that the court is justified in
rejecting them merely on the papers. An
attempt to evaluate
the competing versions of either side is thus both inadvisable and
unnecessary as the issue is not which version
is the more probable
but whether that of the respondent is so far-fetched and improbable
that it can be rejected without evidence.
More onerous is that the
test in that regard is 'a stringent one not easily satisfied'.
In considering whether it has been satisfied
it is necessary to bear
in mind that, all too often, after evidence has been led and tested
by cross-examination, things turn out
differently from the way they
might have appeared at first blush.
[28]
[70]
The high court recorded that the Trust relied:
‘
(O)n either verbal or tacit
acceptance of the provision of the agreement thereby constituting a
verbal agreement the terms of which
is reflected in the agreement or
at least an oral agreement following from the alleged fact that both
parties fully gave effect to
the provisions of the written
agreement.’
In various parts of
its affidavit the Trust appears to be ambivalent about the nature of
the arbitration agreement it purportedly
concluded with Canton
Trading. In para 14 of its founding affidavit the Trust set out the
‘salient expressed, alternatively implied,
alternatively tacit
terms of the verbal PSP agreement. This is reiterated in para 47 as
follows:
‘
The arbitration clause which
the applicant places reliance on in casu (
whether
in writing or verbal or whether explicit or implied
)
clearly delineates that the parties are required to submit to
arbitration “any other matter arising directly or indirectly out
of, this agreement”. The any other matter which is referred to in
the applicable clause, will undoubtedly include a dispute as
to the
validity or enforceability of the agreement and/or the arbitration
clause.’
It did not end here,
in its reply the deponent state: ‘the parties agreed to submit to
arbitration in writing in terms of clause
23 ...alternatively,
parties agreed verbally to submit to arbitration.’
[71]
The
requirement that an arbitration agreement be in writing
does not mean that it has to be signed or otherwise
executed by
both parties to the arbitration. All that is required is that
the parties have agreed that the dispute in question,
or all disputes
of a particular character, be submitted to arbitration, and that
agreement has been reduced to writing. Thus, it
matters not that the
agreement is oral, provided that a written memorial thereof is
produced. An oral agreement to arbitrate
not reduced to writing
is therefore not subject to the provisions of the Act nor are other
forms of dispute-resolution proceeding.
[29]
What is
remarkable is that the high court accepted that the Trust verbally
agreed or ‘at least did so tacitly by giving effect’
and
performing in terms of the agreement. It is therefore beyond
comprehension that it would reject Canton Trading’s version as
a
bare denial.
[72]
The high court found it astonishing that Canton Trading, as a
professional firm of architects, would
accept its task as the
principal agent on the basis of a verbal agreement to render services
at a reasonable fee. However, on the
evidence, the contract pricing
data had not been completed and indeed the fees were determined on
the basis of e-mails. The high
court also questioned the absence of
an explanation from Canton Trading why its attorneys made the PSP
agreement available to the
Trust and had also forwarded agreements in
respect of the previous projects. It also remarked that, in its
papers, Canton Trading
never alleged that the Trust raised an
objection to any of the terms of the agreements at any stage during
the previous projects.
[73]
I strain to fathom how the Trust would take issue with the terms of
the agreements submitted when its
deponent is said to have been
indifferent to any paper work. Canton Trading’s case that the
parties acted in terms of oral agreements
- that the Trust’s
deponent was ‘simply not a man interested in paper work’ and that
it was never possible to agree on the
terms of the agreements and
finalise them, was never seriously disputed. It is not uncommon in
the business world, particularly where
there had been a longstanding
beneficial contractual relationship, as in this case, for parties
to conduct their business affairs without a great degree of
formality
.
Harms JA observed:
'Businessmen
are often content to conduct their affairs with only vague or
incomplete agreements in hand. They then tend to rely on
hope, good
spirits,
bona
fides
and
commercial expediency to make such agreements work.'
[30]
[74]
Much store was set by the high court that Canton Trading’s attorney
took instructions from his client
prior to directing letters to the
Trust’s attorneys, which conveyed that Canton Trading was prepared
to submit to arbitration.
Canton Trading says its attorney, upon
receipt of the letter of 1 August 2017, which called on parties to
submit to mediation on
the basis of clause 23 of the PSP agreement,
on face value assumed and accepted the accuracy of its contents.
Pursuant to this, the
attorney sought from the Trust’s attorneys
and was placed in possession of the PSP agreement. His attention was
not drawn to the
absence of the requisite signatures on the
agreement. At all relevant times, he says, he was under the mistaken
impression that there
was an agreement entered into and duly signed
by the parties. When the attorney directed correspondence to the
Trust, including the
e-mail of 7 November 2017, for which he was
severely criticised by the high court, to the effect that ‘Our
client is not prepared
to mediate. We are taking instructions on the
appointment of the arbitrator and we are obviously in principle
prepared to proceed
with the arbitration process,’ he was still
labouring under the
bona fide
, but mistaken, belief that the
agreement was in place and had not obtained instructions from Canton
Trading on the existence of a
binding arbitration agreement.
[75]
Canton Trading’s attorney stated that the correspondence dispatched
to the Trust’s attorneys were
provisional and pragmatic logistics
regarding a possible submission to arbitration. A day prior to the
pre-arbitration meeting on
23 January 2018, it dawned on him that he
had been mistaken about the existence of the arbitration agreement.
On 24 January 2018,
well after the pre-arbitration meeting by the
parties’ respective legal teams, Canton Trading says it pertinently
instructed its
legal team that there was no arbitration agreement
entered into or agreed upon. It therefore notified the Trust of its
resistance
to submit to arbitration.
[76]
The
statements and conduct of an agent affords no admissible proof of the
existence or the scope of his authority.
[31]
From the
correspondence exchanged through the use of the words ‘in principle
prepared to proceed with the arbitration process’,
one gains the
impression that Canton Trading’s attorneys were cautious
to
make it plain that their client consented or submitted to
arbitration. Their request that a condition be inserted in the
pre-arbitration
agreement that Canton Trading obtain the
approval/consent of its insurer concerning the agreement to submit to
arbitration, in my
view, signifies the indecision.
A
general mandate by a client to his attorney to attend to a
dispute by negotiating with his adversary's attorney is
not a
tacit authorisation to the attorney to submit to arbitration,
nor would the attorney's submission to arbitration be incidental
to
such a brief.
[32]
[77]
There
is no evidence to controvert Canton Trading’s attorney’s lack of
express authority to consent to the arbitration. Neither
is there any
evidence to show that he reported to his client the outcome of the
negotiations between himself and the adversary’s
attorney.
The
criticism levelled against Canton Trading’s attorney by the high
court, that ‘it is unthinkable that an experienced attorney’
would take a decision to submit to arbitration without the client’s
instruction, while it may be justified does not take the matter
any
further absent evidence showing Canton Trading’s express consent.
For
acts of great prejudice an attorney needs a special mandate.
[33]
[78]
There
was, in this case, intractable disputes of fact not capable of
resolution by means of motion proceedings.
From
the aforegoing limited analysis of the issues raised in the
affidavits, it can hardly be said that Canton Trading’s version
was
so far-fetched or untenable that the high court was justified in
rejecting it merely on the papers. To reiterate, it is
a rare
occurrence that the courts would reject the respondent’s version on
this basis, even if it is improbable in a number of
respects, because
our courts are always alive to the potential for evidence and
cross-examination to alter its view of the facts
and the plausibility
of evidence.
[34]
The
adoption of a robust approach
by
the high court in disposing the application, in my view, constitutes
a material misdirection. Not only is it at variance with the
well-established principles applicable to motion proceedings, but it
also amounted to a denial of a fair trial of issues. Insofar
as the
full court found differently it erred and its decision cannot be
supported. As I see it, the issues raised would not have
merited the
dismissal of the application but would have required the leading of
oral evidence. In light of my conclusion that it
was not open to the
high court to decide the issues that fell within the aegis of the
arbitral regime the remittal of the matter
does not arise.
[79]
On the question of relief: it was premature for the Trust to have
approached the high court to compel Canton
Trading to submit to
arbitration because
s 15(2)
of the
Arbitration Act and
the rules of
the AFSA provide adequate remedies in instances of defaulting
defendants. However, Canton Trading’s rigid stance,
in flatly
refusing to submit to arbitration, is problematic. The order prayed
for in the notice of motion is that Canton Trading
submit to
arbitration to have the disputes as set out in the arbitration
agreement, which is attached to the Trust’s founding affidavit
as
annexure B, adjudicated. Annexure B is a revised version of the
arbitration agreement which the Trust attorneys drafted following
the
pre-arbitration meeting of 24 January 2018 which, as alluded to, was
marred by disputes of fact. It would be undesirable to make
an order
which compels the parties to attend arbitration on the basis of that
agreement.
[80]
Evidently, a period of four years has lapsed since the Trust declared
the dispute in terms of clause
23 of the PSP agreement with no end in
sight.
Section 19(
d
) of the
Superior Courts Act 10 of 2013
empowers this Court to
render any decision
which the circumstances may require. The inherently pragmatic
approach, actuated by dictates of
justice and common fairness
to the parties,
would be to issue an order
which compels Canton Trading to submit to arbitration. I can conceive
of no prejudice. However, i
t would be objectionable
to
attempt to define the terms of reference for the arbitration. It lies
within the domain of the arbitrator and the parties to
delineate the issues and the scope of the arbitration process.
[81]
For all the above reasons, I would uphold the appeal in part. Save
for the costs of the proceedings in
the high court and the full
court, which the Trust ought to bear, insofar as both parties would
have achieved partial success on
appeal, I would have made no costs
order for the proceedings in this Court.
[82]
Accordingly, I would have ordered that:
1
The appeal is upheld in part.
2
Canton Trading 17 (Pty) Ltd, the appellant, is ordered to submit to
arbitration.
3
The order of the full court is set aside and in its place is
substituted the
following:
‘
The appeal is
upheld with costs.
The order of the
high court is set aside and replaced with the following:
“
The application
is dismissed with costs”.’
M V PHATSHOANE
ACTING JUDGE OF
APPEAL
Appearances:
For
appellant:
G F Heyns SC
Instructed
by:
VDT Attorneys, Pretoria
Honey Attorneys,
Bloemfontein
For
respondent:
P Zietsman SC and R van der Merwe
Instructed
by:
P D Yazbek,
Lovius Block,
Bloemfontein
[1]
Fakie NO v
CCII Systems (Pty) Ltd
[2006]
ZASCA 52; 2006 (4) SA 326 (SCA).
[2]
Fisher and Another v
Ramahlele and Others
[2014]
ZASCA 88
;
2014 (4) SA 614
(SCA) paras 13-15. See also
Molusi
v Voges N.O and Others
[2016]
6 ZACC; 2016
(3) SA 370 (CC) with reference to
Naidoo
and another v Sunker
[2011]
ZASCA 216
;
[2012] JOL 28488
(SCA) and cases cited.
[3]
Fiona
Trust & Holding Corp and others v Privalov and others
[2007]
4 All ER 951 (HL).
[4]
Fakie NO
fn 1 citing
Plascon-Evans
Paints (TVL) Ltd v Van Riebeeck Paints (Pty) Ltd
[1984]
ZASCA 51
;
[1984] 2 All SA 366
(A); fn 2.
[5]
Fn 2.
[6]
See
North
East Finance (Pty) Ltd v Standard Bank of South Africa Ltd
[2013]
ZASCA 76; 2013 (5) SA 1 (SCA).
[7]
Ibid
para
21.
[8]
Ibid para 12.
[9]
Heyman v
Darwins Ltd
[1942]
1 All ER 337
(HL) at 343F.
[10]
Kompetenz-kompetenz
is a
jurisprudential doctrine whereby a legal body, such as a court or
arbitral tribunal, may have competence, or jurisdiction,
to rule as
to the extent of its own competence on an issue before it. Regarding
its German origin, s
ee
P Landolt, ‘the inconvenience or Principle: Separability and
Kompetenz-Kompetenz’.
Journal
of International Arbitration
30,
no. 5 (2013): 511-530 at 513, footnote 4: ‘This German name for
the principle has established itself in English usage. In
its
original German usage, it designated not the general notion of the
arbitral tribunal’s powers to come to a determination
on its own
jurisdiction but a more specific notion, i.e., a variant of the
general notion.’ Furthermore, E Gaillard and J Savage
(
Fouchard,
Gaillard and Goldman on International Commercial Arbitration,
Kluwer
Law International, The Hague, 1999 at 396-397) explain: ‘German
legal terminology lends a meaning to the expression which
differs
substantially from that which the expression is intended to convey
when used in international arbitration. If one were
to follow the
traditional meaning of the expression in Germany,
“kompetenz-kompetenz” would imply that the arbitrators are
empowered to make a final ruling as to their jurisdiction, with no
subsequent review of the decision by any Court. Understood in
such a
way, the concept is rejected in Germany, just as it is elsewhere.
From a substantive viewpoint, the paradox is all the more
marked for
the fact that in Germany the question of whether the courts should
refuse to examine the jurisdiction of an arbitral
tribunal until
such time as the arbitrators have been able to rule on the issue
themselves (the negative effect of the ‘competence-competence’
principle), has never
been
accepted [. . .].’
[11]
Article 1458
of the French New Code of Civil Procedure (1981) which reads as
follows, ‘Whenever a dispute submitted to an arbitral
tribunal by
virtue of an arbitration agreement is brought before a court of the
state, such court shall decline jurisdiction. If
the arbitral
tribunal has not yet been seized of the matter, the court should
also decline jurisdiction unless the arbitration
agreement is
manifestly void.’
[12]
Articles
8(1), 8(2) and 16 of the UNCITRAL Model Law, and Article II (3) of
the New York Convention. There is no reported case in
South Africa
yet on the application of the principle of competence-competence
despite a number of academic writings on the principle
and its
application in foreign jurisdictions. See Kluwer Law
International,2005,
International
Arbitration Agreements and Competence-competence in International
Commercial Arbitration
;
Park, WW,
The
Arbitrator’s Jurisdiction to Determine Jurisdiction
,
in Van Den Berg JA(ed), International Arbitration 2006: Back to
Basics, ICCA Congress Series, Vol 13, ICCA & Kluwer Law
International
,2007 and authorities cited.
[13]
Section 39(1)
(b)
and
(c)
of the Constitution of the
Republic of South Africa, Act 108 of 1996:
(1)
When interpreting the Bill of Rights, a court, tribunal or forum—
…
(
b
)
must consider international law; and
(
c
)
may consider foreign law.
[14]
Zhongji
Development Construction Engineering Co Ltd v Kamato Copper Co Sarl
[2014]
ZASCA 160
;
2015 (1) SA 345
(SCA) at para 50.
[15]
In line with what is noted in
para 36 above.
[16]
Universiteit
Van Stellenbosch v J A Louw (Edms) Bpk
1983
(4) SA 321
(A) at
333G.
[17]
Article 3.3
of the Commercial rules of the Arbitration Foundation of Southern
Africa (AFSA).
[18]
Amalgamated
Clothing and Textile Workers Union of South Africa v
Veldspun
(
Pty
)
Ltd
[1993]
ZASCA 158
;
[1994] 1 All SA 453
(A)
at
169.
[19]
Radon
Projects
(
Pty
)
Ltd
v NV Properties
(
Pty
)
Ltd
[2013]
ZASCA 83
; [
2013]
3 All SA 615
(SCA)
;
para 28.
[20]
Total
Support Management (Pty) Ltd and Another v Diversified Health
Systems (South Africa) (Pty) Ltd and Another
[2002]
ZASCA 14
;
2002 (4) SA 661
(SCA)
para 25
.
[21]
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews and Another
[2009]
ZACC 6
;
2009 (4) SA 529
(CC) para 235.
[22]
Fn
13.
[23]
Ibid
para 50.
[24]
Compare
Moch
v Nedtravel (Pty) Ltd t/a American Express Travel Service
[1996]
ZASCA 2
;
1996 (3) SA 1
(A) at 16A-B which concerns the effect of a
recusal application.
[25]
MEC for
Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd t/a
Eye & Lazer Institute
[2014]
ZACC 6
;
2014 (3) SA 481
(CC) at 512 fn 78.
[26]
Raphaely
v Stephan
1915
CPD 6
at 9.
[27]
National
Scrap Metal (Cape Town) (Pty) Ltd and Another V Murray & Roberts
Ltd and Others
[2012]
ZASCA 47; 2012 (5) SA 300 (SCA).
[28]
Ibid
paras
21-22.
[29]
De
Lange v Presiding Bishop, Methodist Church of Southern Africa and
Another
.
[2014] ZASCA 151
;
2015 (1) SA 106
(SCA) para 46.
[30]
Namibian
Minerals Corporation Ltd v Benguela Concessions Ltd
[1996]
ZASCA 140
;
1997
(2) SA 548
(SCA)
at
561G.
[31]
Inter-Continental
Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57
Industria Ltd and Another
1979
(3) SA 740
(W)
at
750B.
[32]
Ibid at 751H.
[33]
Bikitsha
v Eastern Cape Development Board and Anothe
r
1988 (3) SA 522
(E) at 527I;
Ras
v Liquor Licensing Board, Area No 11, Kimberley
1966
(2) SA 232
(C)
at
237E - 238C.
[34]
Media
24 Books (Pty) Ltd v Oxford University Press Southern Africa (Pty)
Ltd
[2016]
ZASCA 119
;
2017 (2) SA 1
(SCA) para 36; see also
National
Scrap Metal (supra)
fn
25 paras 21-22.