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[2013] ZAKZPHC 36
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Hesse NO and Others v Hlanganisani Construction CC and Another (8963/2011) [2013] ZAKZPHC 36 (20 June 2013)
IN THE KWAZULU-NATAL
HIGH COURT, PIETERMARITZBURG
REPUBLIC OF SOUTH
AFRICA
REPORTABLE
CASE NO: 8963/2011
In the matter between:
GLENN ARTHUR HESSE N.O
................................................................
First
Applicant
GUY MORTON SHAW SMITH
N.O
....................................................
Second
Applicant
SYBRAND JOHANNES
STRUWIG N.O
................................................
Third
Applicant
and
HLANGANISANI
CONSTRUCTION CC
.............................................
First
Respondent
T.W BRYANT
.................................................................................
Second
Respondent
JUDGMENT
Delivered on: 20 June
2013
POYO-DLWATI, AJ
[1] By way of Notice of
Motion, the Applicants launched these review proceedings on 19
September 2011 and sought an order in the
following terms:-
(a)
That the Second Respondent be called upon to dispatch to the
Registrar of this Court, within 15 days of the receipt of the notice
of motion, the completerecord in the arbitration proceedings between
the Applicants and the FirstRespondent in which he acted as
arbitrator and to provide full and comprehensive reasons for each
item and aspect of his arbitration award dated 8 August 2011.
(b)
That enforcement of the arbitration award bestayed pending
finalization of theapplication.
(c)
That a Rule Nisi be issued calling upon the Respondents to show cause
why the Second Respondent’s arbitration award dated
8 August
2011 should not be reviewed and set aside.
(d) That the First
Respondent pay the costs of the application.
[2] On 25
th
June 2007 the Applicants, representing the Ndlovu Development Trust
and the First Respondent (the parties) concluded a JBCC Series
2000
Edition 4.1 Code 2101 March 2005 agreement.The First Respondent, for
avaluable consideration, agreed to construct a new residential
development at Richards Bay, KwaZulu-Natal. The agreement, in clause
40 thereto, provided for resolution of disputes between the
parties
by arbitration. A dispute arose between the parties and the President
of the South African Institute of Architects appointed
the Second
Respondent to arbitrate over the dispute.
[3] At a preliminary
meeting held on 16 February 2010 the parties agreed that:
(a)
The Arbitration would be conducted in terms of the Rules of Conduct
of Arbitration as issued by the Association of Arbitrators
(Southern
Africa).
(b)
The Arbitrator would assume an active and inquisitorial role and
would usehis own skills in order to be fully appraised of the
dispute.
.
(c) The proceedings would
be recorded by Sneller Recordings and copies of the transcript would
be made available to the parties.
(d) The parties agreed
that the decision of the Second Respondent would be final and binding
between them.
[4] Statements of the
claim and the defence were exchanged between the parties. At another
preliminary meeting held on 15
th
June 2010 it was agreed
that a severable issue would be submitted to the Second Respondent
for determination.
The issue was whether a
certain email of 28
th
April 2009 addressed by the
Applicant’s principal agent, Mr Charles Taylor (Taylor), to the
FirstRespondent was binding on
the Applicants in that it contained
two scenariosfor the determination of the date for practical
completion, the extension of time
permitted and the calculation of
the recommended penalty. On 3 February 2011 the Second Respondent
determined that the said email
was not binding on the Applicants.
The Second Respondent
further directed the First Respondent to submit its claim for
extension of time and revision of the date for
practical completion
to enable the Second Respondent to resolve the matter. He further
directed that the question of the actual
date of practical completion
and the amount to be recommended for the penalty to be levied would
be advised to the Applicants for
his decision on the amount of
penalties to be levied.
[5] At a further
preliminary meeting held on 22 February 2011, it was agreed that
Taylor would send all his documentation regarding
the extension
oftime claim to Mr Johan Richards (Richards) (he being the
representative of the First Respondent) who would also
prepare the
claim for the First Respondent and after they had discussed the
details they would submit it to the Second Respondent
for his
decision.
The Second Respondent
also requested Taylorto set out reasons for his decisionregarding the
date of practical completion to Richards
and tohim as this date was
important to the question of the penalty amount to be levied. The
three of them would meet if necessary
to try and iron out these
issues. It was also agreed that the Second Respondent would determine
the claim for latent defects as
a separate issue outside the
arbitration dispute.
[6] The Second Respondent
convened a meeting on 7 July 2011 at Richards Bay which was attended
by Taylor, Richards and Mr David
Kunneke (Kunneke),(the member of the
First Respondent) to deal with the issues raised in paragraph 4
above. After this meeting
in Richards Bay, the Second Respondent
believed that matters were thoroughly debated and consensus was
achieved in all matters.
He delivered his award on 8 August 2011 with
a costs order against the Applicants. This application was then
launched.
[7] Subsequent to the
launching of this application the record was delivered to the
Registrar of this Court. The Second Respondent
in his affidavit of 17
November 2011 regarded himself as being
functus officio
and
contended that where necessary reasons had been furnished in his
award and there was no need for further reasons. Affidavits
were
exchanged between parties and the matter was heard on 18
th
March 2013. The Second Respondent has since passed away but had
indicated that he would abide by the decision of thisCourt.
[8] At issue to be
determined by me is whether the arbitration award should be set aside
on the basis of gross irregularity in the
conduct of the proceedings
on the part of the Second Respondent, i.e:-
(a) Whether the Second
Respondent exceeded his mandate in that he decided issues which fell
outside the limited mandate agreed upon
between the parties on 22
February 2011 especially the First Respondent’s claim for
preliminaries and generals and default
interest (first ground).
(b) Whether Kunneke, on
behalf of the First Respondent, participated in the ‘thorough’
debate in the meeting of 7 July
2011and whether such participation in
that meeting tainted the proceedings and whether such participation
prejudiced the Applicants
in that they were not afforded a proper
opportunity to present their case regarding the preliminaries and
generals and default
interest (second ground).
(c) Whether the Second
Respondent failed to exercise his judicial discretion
uponaconsideration of all the relevant facts and in
accordance with
recognised principles pertaining, specifically, to the costs incurred
in theproceedings during 27 to 29 October
2010 when the separate
issue was dealt with and determined in the applicants’ favour
(third ground).
[9] It is trite in our
country that an arbitration award may be set aside where:
(a)
any member of an arbitration tribunal has misconducted himself in
relation to his duties as arbitrator or umpire; or
(b) an
arbitration tribunal has committed any gross irregularity in the
conduct of the arbitration proceedings or has exceeded his
powers; or
(c) an award has been improperly attained,See Section 33(1) of the
Arbitration Act42of 1965.Levinsohn J’s view in
Steeledale
Cladding (Pty) Ltd v Parsons NO and another
2000
JOL 7608
(D)
was
that the foregoing grounds codify the law both statutory and in
decided cases as it existed prior to the coming into operation
of the
statute. In
Dickenson
& Brown v Fisher’s Executors
1914
AD 166
at 174
Solomon JA said the following:
‘
Now it is
not, I think, open to question that as a general rule where parties
have referred their disputes to an arbitrator, his
award is final and
conclusive and no appeal lies from his decision’.
Against thisbackground, I
now deal with the first ground of review.
[10] It is the
Applicant’s case that the Second Respondent had no mandate to
deal with the claim for preliminaries and generals
and default
interest.If the SecondRespondent dealt with these then the Applicant,
as was argued should havebeen allowed to present
its case fairly to
the Respondent. The Applicantargued that their absence in the
Richards Bay meeting on 7 July 2011 was grossly
irregular and unfair
as they were not able to present their case with regards to
preliminaries and generals and default interest.
In fact the
contention of the Applicants is that the preliminaries and generals
and defaultinterest were not part of the mandate
in the first place.
On the other hand it was
argued on behalf of the First Respondent that the preliminaries and
generals and default interest were
a direct consequence once the date
for practical completion and the extension of time claim had been
dealt with. The argument went
further and suggested that it therefore
had to be inferred that thepreliminaries and generals and default
interest would be the
resultant costs once the extension of time and
practical completion claim had been dealt with. However, according to
annexure G
H 5 of the founding papers, being the minutes of the
meeting of 3 February 2011, the Second Respondent determined that
‘
theclaimant
(being the First Respondent) is required to submit his claim for
extension of time and revision of thedatefor practical
completion to
me and to the Defendant (being the Applicants) so that I can resolve
the matter. The question of the actual date
of practical completion
and the amount to be recommended for the
penalty
(my
emphasis) to be levied will be advised to the Employer for his
decision on the amount of penaltiesto be levied’(see paragraph
numbered 2 of page 10).
No mention is made in
that paragraph of a claim for preliminaries and generals and default
interest.The determination above refers
to penalties and not to
interest.
[11] Interest is defined
as the bank rate that is applicable from time to time to registered
banks when borrowing money from the
Central or Reserve Bank of the
country named in the schedule (see JBCC agreement). Penalty on the
other hand is defined as penalty
as stated in the schedule. The
schedule prescribes the penalty as R8000.00 per day. In my view
penalty would have been levied once
after practical completion and
extension of time has been dealt with as this has an effect on when
thework was to be completed
and the defaulting party would be subject
to penalties. Interest on the other hand would be levied where a
particular amount was
payable but for one or other reason was not
paid on the due date. Perhaps this would be payable on the
preliminaries and generals.
In my
view,theSecondRespondents’ determination dealt with penalties
and not interest. It was suggested on behalf of the First
Respondent
that the issue of preliminaries and generals had always been a
contentiousissue between the parties and had to be dealt
with. Whilst
this could have been so it was not part of what was determined by the
Second Respondent on 3 February 2011 as being
part of his
adjudication once he had dealt with the severable issue. It seems to
me that it was never agreed upon between the parties
that the Second
Respondent would adjudicate on that issue.
[12] In
Total
Support Management (Pty) Ltd & another v Diversified Health
Systems (SA) (Pty) Ltd & another
[2002] ZASCA 14
;
2002 (4) SA 661
(SCA)
at 673H,
the court held that 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. The Second Respondent had made it clear on 3
rd
February 2011 what he was going to determine and this was agreed to
by the parties and it was definitely not the claim for preliminaries
and generals but the claim for date for practical completion and
penalties.
In my view there was no
agreement by the parties that the claim for preliminaries and general
would be determined by the Second
Respondent. It was further argued
on behalf ofthe First Respondent that clause 29 of the JBCC contract
is headed ‘Revision
of date for practical completion’ and
clearly regards a ‘revision of the date for practical
completion as going hand
in hand with an adjustment of the
contractvalue’ (29.2). Clause 29.2 reads:
‘
The
circumstances for which the contractor is entitled to a revision of
the date for practical completion and for which revisionthe
principal
agent shall adjust the contract value in terms of 32.12 are delays to
practical completion caused by………’
It goes on to list the
circumstances. I agree the date for practical completion is linked
with contract value but not with preliminaries
and generals and
default interest because these could be catered for elsewhere.
[13] As I have alluded to
above, in my view the Second Respondent was not mandated to deal with
preliminaries and generals and default
interest but to dealwith
extension of time and date for practical completion and penalties.
(See
Dickenson & Brown v Fisher’s Executors
supra at 175-176
.)In fact, the impression created on the
determination of 3 February 2011 is that the Second Respondent was to
deal and resolve
the claim for extension of time and revision of the
date for practical completion and the amount to be recommended for
the penalty
to be levied would be
advised
to the employer for
his
decision
on the amount of penalties to be levied (my
emphasis).
On the arbitration record
this is clear in that the Second Respondent said, once you determine
the date for practical completion,
then you can deal with
preliminaries and generals. It seems to me that the Second Respondent
formed a certain view about Taylor
and thereafter decided to deal
with all of these issues. In Volume 11 of the arbitration proceedings
on page 61, being page 897
of the indexed papers under paragraph 9
the Arbitrator viewed Taylor as
lacking knowledge
of the
agreement and this, in my view, led him to deal with all issues even
those outside his mandate and thereby exceeding his
powers as
envisaged in terms of
Section 33(1)(b)
of the
Arbitration Act No.42
of 1965
. It follows therefore that the Applicant should succeed on
this ground.
[14] The second
grounddeals with the meeting of 7 July 2011 in Richards Bay. It is
commoncause that Taylor, Richards, Kunneke and
the Second Respondent
were inattendance at the meeting in Richards Bay. It is also common
cause that contrary to the procedure
laiddown in February 2011, the
meeting in Richards Bay was not recorded (see para 3(c) above). There
is therefore no independent
minutes of that meeting. The Applicants
allege that they (Hesse) were denied permission to attend the meeting
by the Second Respondent.We
do not know how it came about that
Kunneke was at the meeting. Kunneke in his replying affidavit avers
that he only participated
or dealt with the issue relating to latent
defects. However, page 7 and the last line of paragraph 3 thereto of
the Second Respondent’s
award reads as follows
‘
no
decisions were made but sufficient progress was achieved to enable
the three of us to meet together at RichardsBay.’
This
would have been a meeting between the three prior to the meeting in
Richards Bay. Paragraph 4 thereto reads as follows:
‘
The
meeting at Richards Baydealt withthe revision of the date for
practical completion on the various sections of the work, as well
as
the actual date of practical completion. From this information it is
a simple matter to calculate the penalties that could be
levied
against the claimant. The question of latent defects was also dealt
with. Matters were thoroughly debated and consensus
was achieved in
all matters. The decisions are recorded below’.
[15] It is clear from the
above that it was always the intention of the parties as it was
agreed that Taylor, Richards and the Second
Respondent would try and
resolve the remaining issues. Kunneke was never supposed to be part
of the three mentioned above. If the
Second Respondent did not know
that Kunneke was going to attend the meeting in Richards Bay, then
once he found him at the meeting,
he should have checked with the
First Applicant if he had any issue with his presence at the meeting.
[16] From what I have
quoted above we now know what was discussed at the meeting according
to the Second Respondent. Taylor and
Kunneke do not agree that there
was consensus. This obviously is the undesirable consequences of the
failure to record the proceedings
or even the Second Respondent
making available his notes pertaining to the meeting. I agree with
the First Applicant that the conduct
and the results of the meeting
in Richards Bay taint the entire award. The Applicants were denied
the same opportunity that was
afforded to the First Respondent. In my
view, whether Taylor objected or not is of no moment.The fact is that
they were not equally
represented so as to be able to deal with the
issues that were dealt with at the meeting.
In
Benjamin v South
African Building and Construction (Pty) Ltd
1989 (4) SA 940
(C) at
971
the learned Judge said the following:
‘
Where
misconduct of the arbitration proceedings is the ground for the
setting aside of an award under the provincial legislation
the
element of good faith was replaced by an objective test to ascertain
whether or not the conduct of the proceedings was such
as to be
likely to amount to a miscarriage of justice. Misconduct in relation
to the conduct of proceedings as a ground for setting
aside an award
includes a bona fide error in the procedure adopted where the effect
has been to deny a party a fair and complete
hearing’
[17] We know that the
meeting never dealt with latent defects only. There are also no
minutes that reflect that oncethe issues of
revision of the date for
practical completion and penalties were dealt with,Kunneke was
excused from the meeting. Having carefully
considered these aspects I
find that the revised date for practical completion was dealt with at
the Richards Bay meeting. I agree
therefore with the argument
presented on behalf of the First Respondent that that meeting also
dealt with preliminaries and generals.
In my view the presence of
Kunnekein that meeting tainted the proceedings. I find it difficult
to understand why the Second Respondent
deemed it necessary to
conduct meetings separately and individually with the parties. This,
in my view, is a very undesirable situation
that cannot be said to be
transparent nor fair. In any event this approach by the Second
Respondent was found at in
LufunoMphaphuIi and Associates (Pty)
Ltd v Andrews and Another 2009 (4)SA529 (CC) at 552C
wherethe
court held that were an arbitratorto discuss the merits of the matter
with one of the parties to the exclusion of the other
that,
ordinarily at any rate, would constitute a serious irregularity which
may without more warrant the award being set aside.
(See also
Naidoov
Estate Mahomed and others
1951(1) SA 915 (N) at 920
.)I
view, the meeting at Richards Bay, as grossly irregular as the
parties were not given an equal opportunity to present their
case
ontheissues discussed in that meeting especially taking into account
the Second Respondent’s view on Taylor. It seems
the Second
Respondent was guilty of deliberate partiality against Taylor and
therefore Applicants. The Applicant should also succeedon
this
ground.
[18] The third ground
relates to the costs awarded in favour of the First Respondent by the
Second Respondent. In view of the conclusion
I cameto in paragraphs
13 and 17above, I do not deem it necessary for me to deal with this
issue but I will. The Applicant’s
complaint is that the Second
Respondent applied the general rule that costs follow the result
without takingthe special circumstances
of the finding he made in
relation to the hearing of 27, 28 and 29 October 2011 into account.
On the other hand the First Respondent
believes that this is
tantamount to the appeal of the Second Respondent’s decision
and believes it is not permissible in
terms of the Arbitration
Act.The Applicant has not advanced any reasons as to why it believes
this is a gross irregularity save
to say the Second Respondent did
not exercise his judicial discretion in considering the costs of
October 2011.
It seems to me that both
Applicant and First Respondent made submissions, with regards to the
costs before the Second Respondent
made his award. These submissions,
in my view, dealt at length with the costs of October 2011. In his
award, the Second Respondent
has dealt with all these costs and came
to his conclusion. I agree with the First Respondent that his
complaint on costs is tantamount
to the appeal of the Second
Respondent’s decision and is wrong. I do not find any basis
upon which the arbitrator’s
decision in this regard may now be
revised.
[19] Finally it was
argued on behalf of the First Respondent that in the event I find
that the Second Respondent was not mandated
to deal with the claim
for preliminaries and generals, then the portion dealing with the
date for practical completion should be
allowed to stand and only set
aside the portion dealing with preliminaries and generals and the
levying of default interest to
be determined by another arbitrator to
be appointed by the parties. I have considered this submission but in
the light of my conclusions
in paragraphs 13 and 17 above and
generally the proceedings in this arbitration I do not agree with
Counsel’s submission.
In the result I make the
following order:
The arbitration award
made by the Second Respondent between the Applicant and the First
Respondent is hereby set aside.
It is directed that the
dispute between the Applicant and the First Respondent be referred
to hearing afresh before a newly constituted
arbitration tribunal,
appointed preferably by the President of Kwazulu-Natal Law Society
or the Chairperson of the General Council
of the Bar in
Kwazulu-Natal.
The First Respondent is
directed to pay the costs of this application.
_______________
AJ POYO-DLWATI
Appearances
Case Number : 8963/2011
For The Applicant : MR
R.M ROOYEN
Instructed by : VENN
NEMETH & HART
281 PIETERMARITZ STREET
PIETERMARITZBURG
TELEPHONE: 033 355
3106
REF: GENEVIEVE/32N0233410
For the 1
st
Respondent : MR M.M SWAIN
Instructed by : NORTON
ROSE SOUTH ARICA
C/O TATHAM WILKES
ATTORNEYS
200 HOOSEN HAFFEJEE
STREET
PIETERMARITZBURG
REF: MR NIGEL TATHAM
For the 2
nd
Respondent : NO APPEARANCE
Instructed by :JOHNSTON&
PARTNERS
251 CLARIBEL ROAD
WINDERMERE
DURBAN
REF: L
LUNDE/CCB/09B150023