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[2012] ZAKZPHC 55
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BDE Constructions v Basfour 3581 (Pty) Ltd (11690/11) [2012] ZAKZPHC 55; 2013 (5) SA 160 (KZP) (31 August 2012)
9
IN THE KWAZULU-NATAL
HIGH COURT, PIETERMARITZBURG
REPUBLIC OF SOUTH
AFRICA
CASE NO. 11690/11
In the matter between:
BDE CONSTRUCTION
.............................................................
APPLICANT
and
BASFOUR 3581 (PTY)
LIMITED
.........................................
RESPONDENT
_____________________________________________________
JUDGMENT
delivered
on 31 August 2012
SWAIN, J
[1] In issue are the
costs of these application proceedings, it being common cause between
the parties that the merits of their
dispute are to be resolved by
arbitration, before a named arbitrator.
[2] The applicant seeks a
stay of these proceedings, together with with an order that the costs
of these proceedings be reserved
for decision by the arbitrator. The
respondent however, relying upon the decision of Wallis J (as he then
was) in
Aveng Africa Ltd.
(formerly Grinaker LTA Ltd.)
t/a Grinaker –
LTA Building East
v
Midros Investments
(Pty) Ltd.
2011 (3) SA 631
KZD
contends that such an
order is not permissible. Mr. van Rooyen, who appeared for the
respondent, in reliance upon this authority,
submitted that the
applicant was not entitled to keep the present litigation in place
and proceed to arbitration. The applicant
was accordingly obliged to
abandon the present litigation, by withdrawing the application and
tender payment of the respondent’s
costs.
[3] Mr. Voormolen, who
appeared for the applicant, submitted that if Wallis J intended that
a litigant may not stay the litigation
proceedings (and must withdraw
them) before he is allowed to go to arbitration, then that part of
the Judgment was clearly wrong
and should not be followed. He
submitted that the proceedings could be stayed and did not have to be
withdrawn, because a
“stay of proceedings”
was
provided for in
Section 6
of the
Arbitration Act No. 42 of 1965
and
is consistent with the principle that the jurisdiction of the Courts
is not ousted by an arbitration agreement.
[4] Counsel were
ad
idem
however, that the conclusion of Wallis J
(at 639 H)
“……
.
that a party to an arbitration agreement who commences litigation
instead of proceeding to arbitration does not, merely as a result
of
adopting that course, abandon its rights to have resort to
arbitration under the agreement”
was correct. In Aveng,
the defendant (Midros) had submitted that
Aveng (the plaintiff) had
elected to pursue its claim by litigation and was
“precluded
from retracing its steps”.
The argument advanced
was that Aveng had two alternative remedies, either to litigate or to
go to arbitration, and it was precluded
from
“changing
tack and seeking to arbitrate”
(at paragraph 16).
[5] Wallis J in reaching
the conclusion that he did, rejected this argument for the reasons
and on the grounds set out in his Judgment
with which I respectfully
agree, and which do not require repetition
Aveng at paras 17 and
18
[6] However, the issue of
whether Wallis J was wrong in concluding that a litigant in the
position of Aveng (and the applicant in
the present case) is
precluded from staying the litigation proceedings and must withdraw
them, before proceeding to arbitration
requires a careful
consideration of what Wallis J had to say in this regard, which is as
follows
“
In my view
the commencement of litigation does not preclude Aveng from invoking
the arbitration clause in the contract.
[20] That does not, however, mean that
Aveng is entitled to seek a stay of this action. It does mean that it
is free to abandon
the litigation and proceed to arbitration,
although conceivably it would face problems of prescription were it
to do so. But that
is not what it wishes to do. It wishes to keep the
present litigation in place, but stayed, whilst it pursues its claim
by way
of arbitration. The problem is that it commenced this action
in breach of a binding agreement to arbitrate. Midros has chosen not
to contest this by seeking a stay, but Aveng’s conduct remains
a breach of its obligations under the arbitration clause.
It does not
cease to be such merely because Midros, for its own reasons, does not
seek to rely upon that breach.
[21] Aveng is in breach of its
obligations under the arbitration agreement, but claims nonetheless
to enforce that agreement against
Midros. That is an untenable
situation and contrary to basic principle. An arbitration agreement
is a clear example of an agreement
where the obligations of the
parties are reciprocal in the sense that performance by the one party
is conditional on performance
by the other. Hitherto Aveng has
ignored its contractual obligations under the arbitration clause and
pursued its claims by way
of litigation. Midros has chosen not to
challenge this. Now Aveng, whilst keeping in place the litigation
commenced in breach of
its obligations, seeks to enforce against
Midros the very contractual provision of which it is in breach. It is
hardly surprising
that Midros objects to this. While it has phrased
that objection in the language of election, its character remains
that it objects
to having the arbitration clause enforced against it
for so long as Aveng remains in breach of its obligation to
arbitrate. It
is not in my view an answer for Aveng to say that it is
now willing to arbitrate and comply with its obligations. It seeks to
do
so while maintaining the present litigation that was commenced,
and has been conducted in breach of the arbitration agreement. In
other words it seeks to take advantage of its existing breach while
trying to hold Midros to the terms of the agreement. That is
not
something that a court will countenance”.
Aveng at pgs 640 –
641
[7] Although in Aveng,
the applicant sought the stay of an action
it had instituted against
Midros, and in the present case the applicant seeks a stay of the
application proceedings, in which payment
of a sum of money is sought
from the respondent, nothing turns upon this distinction.
[8] Although the argument
advanced by Midros was, as pointed out by Wallis J, phrased in the
language of election, its objection
was based upon Aveng seeking to
enforce the arbitration agreement, whilst in breach of the
arbitration agreement’s terms.
In the present dispute the
respondent likewise contends that the dispute between the parties
falls within the terms of the arbitration
agreement and the applicant
is accordingly in breach of its terms.
[9] It is clear that
where a party to an arbitration agreement, institutes proceedings in
breach of the arbitration agreement, the
other party is faced with an
election whether to enforce the arbitration agreement, by seeking a
stay of the proceedings, or not.
If the innocent party elects to
enforce the arbitration agreement, this must be done either:
[9.1] By applying for a
stay of the proceedings in terms of
Section 6
of the
Arbitration Act
No. 42 of 1965
, before the delivery of any pleadings, or the taking
of any further step in the proceedings. Should the innocent party
take a further
step in the proceedings, without having applied for a
stay, it thereby precludes itself from doing so.
Conress &
Another v Gallic Construction
1981 (3) SA 73
(W)
at 76 A – B
[9.2] Alternatively, the
innocent party may file a special plea in the nature of a dilatory
plea, for the stay of the proceedings
until the dispute has been
determined by arbitration.
Yorigami Maritime
Construction Co. Ltd. v Nissho-Iwai Co. Ltd.
1977 (4) SA 682
(c)
at 692 H
[10] In the present case,
as in Aveng, the respondent did not contest the entitlement of the
applicant to institute these proceedings,
by seeking their stay. It
is therefore clear that the respondent, when faced with what it
contends was a breach of the arbitration
agreement, elected not to
seek its enforcement. It is trite that having made such an election,
the respondent is bound by it and
thereby waived any reliance upon
and thereby condoned, the applicant’s alleged breach of the
arbitration agreement. As stated
in the oft quoted
dictum
of
Watermeyer A J in
Segal v Mazzur
1920 (CPD) 634 at
645
“
Now, when an
event occurs which entitles one party to a contract to refuse to
carry out his part of the contract, that party has
the choice of two
courses. He can either elect to take advantage of the event or he can
elect not to do so. He is entitled to a
reasonable time in which to
make up his mind, but once he has made his election he is bound by
that election and cannot afterwards
change his mind. Whether he has
made an election one way or the other is a question of fact to be
decided by the evidence. If,
with knowledge of the breach, he does an
unequivocal act which necessarily implies that he has made his
election one way, he will
be held to have made his election that way;
this is, however, not a rule of law, but a necessary inference of
fact from his conduct
: see
Croft
v.
Lumley
(6
H.L.C., at p. 705)
per
BRAMWELL,
B.;
Angehrn
& Piel
v.
Federal
Cold Storage Co., Ltd
.
(1908, T.S., at p. 786)
per
BRISTOW,
J. As already stated, the question whether a party has elected not to
take advantage of a breach is a question of fact
to be decided on the
evidence, but it may be that he has done an act which, though not
necessarily conclusive proof that he has
elected to overlook the
breach, is of such a character as to lead the other party to believe
that he has elected to condone the
breach, and the other party may
have acted on such belief. In such a case an estoppel by conduct
arises and the party entitled
to elect is not allowed to say that he
did not condone the breach”.
Christie, referring to
this quote says the following
“
This passage
makes clear the true nature of the doctrine of election. It is not a
mechanical rule of law but a combination of waiver
and estoppel –
the
onus
is on the defendant to prove that, as a question of fact, the
plaintiff has waived the relief he claims, or failing such proof,
that he is estopped from claiming it …..”
Christie – The
Law of Contract 6
th
Edition pg 563
[11] I accordingly
respectfully disagree with the conclusion of Wallis J that a breach
of the arbitration agreement, caused by the
failure of one party to
refer a dispute to arbitration and institute legal proceedings, does
not cease to be such, where the other
party elects not to rely upon
the breach and stay the proceedings. The consequence of having made
an election not to rely upon
the breach is to waive reliance upon it
and thereby condone it. That the arbitration agreement imposes
reciprocal obligations upon
the parties, such that performance by the
one party is conditional upon performance by the other, and the
applicant may have ignored
its contractual obligations under the
arbitration agreement and proceeded with the present application,
which the respondent has
not challenged, does not alter the fact that
the respondent in electing not to challenge the present proceedings,
made an election
not to enforce the arbitration agreement by which it
is bound, which has as a consequence condonation of the applicant’s
breach of the arbitration agreement.
[12] I accordingly
respectfully disagree with and conclude that Wallis J was wrong in
concluding that where a party to an arbitration
agreement, commences
litigation in breach of the arbitration agreement, to which the other
party to the arbitration agreement,
elects not to seek a stay of such
proceedings, the party instituting such proceedings is precluded from
seeking a stay of those
proceedings and must abandon them, before
being able to refer the dispute to arbitration, in terms of the
arbitration agreement.
[13] The applicant is
accordingly entitled to seek a stay of the present proceedings and is
not obliged to withdraw them, before
referring the parties’
dispute to arbitration.
[14] This conclusion
renders it unnecessary for me to decide whether the present
proceedings were instituted in breach of the arbitration
agreement.
In other words, whether a
“dispute”
or
“disagreement”
had arisen between the
parties, within the meaning of those terms as contained in the
arbitration agreement, at the time the present
proceedings were
instituted. However, the reasonableness of the applicant in seeking
payment of its claim, by way of application
proceedings, is an issue
that the arbitrator will be in a much better position to assess,
having heard evidence of the details
and history of the dispute
between the parties. It is therefore appropriate to reserve the costs
of the application for decision
by the arbitrator.
I accordingly grant an
order in the following terms:
The application is
stayed pending the outcome of the arbitration proceedings referred
to below.
The dispute between the
applicant and the respondent is to be determined by arbitration by
Advocate Troskie S C
(“the arbitrator”)
at
a time and place agreed upon by the applicant and the respondent and
the arbitrator, and in a manner agreed upon by them, or
as
determined by the arbitrator.
The costs of this
application are to be determined by the arbitrator.
__________
Swain J
Appearances/...
Appearances ../
For the Applicant :
Mr. V. Voormolen
Instructed by :
Cox
Yeats Attorneys
C/o Stowell & Co.
Pietermaritzburg
For the Respondent :
Mr. R. Van Rooyen
Instructed by :
Venn
Nemeth & Hart
Pietermaritzburg
Date of Hearing :
13
August 2012
Date of Filing of
Judgment :
31 August 2012