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[2012] ZAKZDHC 84
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OMM Design Workshop CC v Segal and Another (828/2012) [2012] ZAKZDHC 84 (29 November 2012)
1
REPORTABLE
IN THE KWAZULU-NATAL HIGH COURT, DURBAN
REPUBLIC OF SOUTH AFRICA
CASE NO: 828/2012
In the matter between:
OMM DESIGN WORKSHOP CC
......................................................
Applicant
and
STANLEY SEGAL
......................................................................
1
st
Respondent
DIAMOND IGODA VIEW (PTY) LTD
.....................................
2
nd
Respondent
___________________________________________________________
JUDGMENT
___________________________________________________________
GORVEN J
The applicant seeks the following order:
‘
1.
Reviewing and setting aside an interim award published by the First
Respondent on 23 December 2011 in an arbitration between
the
Applicant and the Second Respondent, in terms of which the Second
Respondent was given leave to amend its statement of claim
in the
said arbitration by the introduction of further claims.
2.
Alternatively to paragraph 1, an order in terms of
section 3(2)(c)
of
the
Arbitration Act No 42 of 1965
that an arbitration agreement
concluded between the Applicant and the Second Respondent shall cease
to have effect with reference
to the disputes referred to the First
Respondent for arbitration.’
The applicant also seeks a costs order against the
second respondent.
The first respondent, who will be referred to as ‘the
arbitrator’, did not oppose the application. The second
respondent
did oppose and will be referred to as ‘the
respondent’.
The arbitration arises from a contract for the supply
of architectural and related services (the agreement). The applicant
was
appointed as architect in respect of the construction of a
residence in East London at the instance of the respondent. The
agreement
was concluded in Durban.
Clause 11.2 of the agreement (clause 11.2) reads as
follows:
‘
Should any disagreement arise either party
may declare a dispute by notice to the other party. The parties may
resolve the dispute
by mediation, failing which it shall be referred
to arbitration. The architect shall select an arbitrator from a list
of 3 persons
nominated by the Association of Arbitrators at the
request of either party. The arbitration shall be conducted according
to the
latest edition of the “Rules for the Conduct of
Arbitrators” published by the Association of Arbitrators.’
A dispute arose. The respondent, represented by Charles
Diamond (Diamond) sent an email to the applicant. This contained the
following
paragraphs:
‘
There was no contractual basis for item 8
of Fee account 17 of 29 November 2006 in the sum of R54,493.92.
OMM overcharged on their fees and this has been repaid. This
overcharge must similarly be repaid.
Kindly deposit within 7 days to our company account, failing which we
intend to refer the matter to Arbitration in terms of the
Arbitration
clause 11.2 of the Agreement.’
The applicant, having presumably been provided with a
list of three arbitrators, sent a letter to the respondent dated 29
August
2008 which contained these comments:
‘
1 Mr Stanley Harold Segal is our preferred
arbitrator
The scope of the dispute is to be fully defined by Charles Diamond.
Consideration of written submissions as evidence to the arbitration
is requested, with no legal representatives.’
The respondent, represented by Diamond, wrote to the
arbitrator on the same day requesting his acceptance of appointment
and his
directives as to a pre-arbitration meeting and further
procedural issues. Diamond indicated in this letter that, ‘in
brief
the issues…relates (sic) to the standards of the
services rendered by them and their charges. Full details of my
claims
will be furnished in accordance with a statement of claim in
due course.’
On 6 October 2008 the parties signed a document which
simply, without more, appointed the arbitrator ‘in this
matter’,
having been headed ‘In the matter of the
dispute between Diamond Igoda View (Pty) Ltd and OMM Design
Workshop’. On
the same day, a pre-arbitration meeting was held
at East London at which the parties agreed that the dispute fell
within the
ambit of the agreement and was ready for arbitration.
Diamond gave a general outline of the issues in dispute. It was
agreed
that the parties would themselves decide whether or not to
make use of legal representatives. Dates were agreed for the
exchange
of the statement of claim, statement of defence and further
‘pleadings’. It was agreed that ‘The Standard
Procedure
Rules (Rule 7) for The Conduct of Arbitrations be used in
this arbitration’ (the Rules). This was unnecessary since
clause
11.2 makes the Rules operative.
A statement of claim was duly delivered and further
arbitration ‘pleadings’ exchanged. These included a
conditional
counterclaim by the applicant. It is noteworthy that the
original claim seven in the statement of claim alleged a fraudulent
misrepresentation by the applicant to the respondent that
exceptional architects charge a fee of 12% of the cost of works
whereas
the appropriate rate was 7%. This misrepresentation, it was
claimed, induced the respondent to agree to a rate of 12% whereas,
had it known the true facts, it would have contracted for 7%. The
claim was for damages calculated as the difference between
the two
percentages.
A second pre-arbitration conference was held and the
arbitration set for 30 November to 3 December 2009. By letter dated
11 November
2009 the respondent’s attorneys wrote to those of
the applicant, informing them that during consultations other
breaches
of the agreement had come to light which meant that
probable further claims would be added to the statement. The
arbitration
was adjourned by consent as a result.
On 15 February 2010 the respondent delivered a notice
of intention to amend the claim by including what is referred to as
‘the
new claim eight’. The applicant objected on the
basis that it did not fall within the dispute declared by the
respondent.
The matter was set down for argument on 27 September
2011 and the arbitrator published his interim award on 23 December
2011.
He gave the respondent leave to amend its statement of claim
as requested. This gave rise to the present application.
The respondent raised a point
in
limine
challenging this court’s
jurisdiction to review and set aside the decision of the arbitrator.
It says that the pre-arbitration
meetings and the argument on the
amendment took place outside the jurisdiction of this court. The
arbitrator resides in Gauteng
Province. At the commencement of the
argument I enquired from the respondent whether it persisted in this
point and was informed
that nothing further would be made of it than
had been set out in the heads of argument. I need deal with it only
briefly. As
I indicated, the agreement contained clause 11.2. It is
this clause which gave rise to the arbitration. The agreement was
concluded
in Durban. The arbitration therefore arises from and gives
effect to the agreement. The agreement therefore governs the
arbitration.
The agreement as to the identity of the arbitrator and
those arising from the pre-arbitration proceedings do not confer
jurisdiction
on any other court. Accordingly, since the agreement
giving rise to and governing the arbitration was concluded in
Durban, this
court has jurisdiction to deal with matters arising
from the arbitration, including the review of the decisions of the
arbitrator.
The alternative claim requests this court to declare
clause 11.2 in the agreement to be of no force or effect regarding
the dispute.
This is also clearly a matter over which this court has
jurisdiction. The point
in limine
must therefore fail.
The main relief sought is the review and setting aside
of the interim award of the arbitrator. Section 33(1) of the
Arbitration
Act 42 of 1965 (the Act) sets out the grounds upon which
the court may review and set aside an arbitration award. It reads as
follows:
‘
Where –
any member of an arbitration tribunal has misconducted himself
in relation to his duties as arbitrator or umpire; or
an arbitration tribunal has committed any gross irregularity in
the conduct of the arbitration proceedings or has exceeded
its
powers; or
an award has been improperly obtained,
the court may, on the application of any party to the reference after
due notice to the other party or parties, make an order setting
the
award aside.’
The case for the applicant on review is a simple one.
The applicant restricts its reliance to part of s 33(1)(b),
namely, that
the arbitrator exceeded his powers. This is the sole
basis for the review aspect of the application. This goes to the
jurisdiction
of the arbitrator rather than to the merits of the
dispute.
1
The reasoning of the applicant is as follows. This is a
consensual arbitration arising from clause 11.2. Clause 11.2
requires
the declaration of a dispute. The declaration of a dispute
gives rise to the arbitration proceedings. Those proceedings include
only the declared dispute and no other disputes. The only exception
is if the parties agree to broaden the arbitration to include
a
dispute or disputes falling outside the original declaration. If
there is no such agreement, any new dispute must be declared
in
terms of clause 11.2 and a new arbitration held. The new claim eight
was not mentioned in the dispute declared by the respondent.
The
applicant has not consented to the expanding of the declared dispute
by the inclusion of this claim. The new claim eight
is therefore
excluded from the ambit of the present arbitration. The arbitrator
was appointed to deal with only the declared
dispute (and any others
included by agreement). The arbitrator’s mandate accordingly
does not extend to this dispute. This
means that the arbitrator,
appointed specifically to deal with the declared dispute (and
additional ones consented to) did not
have the power to allow an
amendment to include the new claim eight.
It must be emphasised that the applicant does not
contend that the new claim eight cannot be referred to arbitration.
It is accepted
that the new claim eight would be governed by clause
11.2 if a dispute were to be declared which includes it. The
applicant likewise
does not attack the reasoning of the arbitrator
as to whether it was appropriate to allow the amendment, if he is
found to have
had the power.
The contention of the respondent is that the new claim
eight is covered by the reference to arbitration. It submits the
following.
Accepting, as does the applicant, that the claim is a
dispute as envisaged in clause 11.2, it is a matter which is subject
to
arbitration. At the time the applicant chose the arbitrator, the
issues in dispute had not been defined. The applicant’s
letter
indicating its choice of arbitrator recognised this and said that
the scope of the dispute would be fully defined by Diamond.
The
precise ambit of the issues in dispute was clearly not set out in
the declaration of the dispute or else this paragraph of
the letter
would be meaningless. In any event Rule 17 of the Rules allows for
amendments, subject only to their falling within
the ambit of the
arbitration clause of the agreement, which the new claim eight does.
The relevant part of Rule 17.1 reads as
follows:
‘
[E]ither party may amend or supplement its
statement of claim or statement of defence, unless the Arbitrator
considers it inappropriate
to allow such amendment, having regard to
the delay in making it or the prejudice to the other party or any
other circumstance.’
The respondent contends that the new claim eight was an
amendment to or supplementation of the statement of claim. Because
the parties
had agreed that the Rules would apply to the arbitration,
it was accordingly competent for the arbitrator to allow the
respondent
to amend and he did not act beyond his powers in doing so.
An issue raised by the applicant, but not the
underlying rationale for its launch of the application, is that the
new claim eight
amounts to an amalgamation of numerous claims
totalling R4 436 013.35. It contends that these claims have no
bearing on those
which have been referred for arbitration. It says
that the amendment proposes the inclusion of numerous new issues
concerning
the non provision of drawings, schedules, details and
specifications by the applicant timeously, the incorrect location of
the
buildings, the lack of timeous provision of instructions,
drawings and the like to contractors, the unauthorised instruction
of the demolition of windows and their relocation, the provision of
inadequate drawings and specifications to the quantity surveyor
which gave rise to an underestimate of costs, the alteration of the
design without approval, a variation of specifications and
appointment of a tile manufacturer who lacked capacity, certifying
payment costs which should not have been certified, failure
to
disclose certain facts, failure on the applicant’s part to
claim penalties against the contractor for late completion
and the
failure to ensure timeous completion of the building project.
There is no doubt that the new claim eight is
extensive, both as to ambit and as to the total claimed. The crisp
issue, however,
is whether it falls outside the ambit of the
arbitration set in motion when the dispute was declared, as
contended for by the
applicant. A dispute was declared. At the time
the matter was referred to arbitration, the ambit of the dispute was
not defined.
The applicant stipulated that Diamond, who all along
has represented the respondent, would define the precise ambit. This
can
only be because it was recognised that, until then, the dispute
had not been clearly defined. No time limit was set and neither
was
it said that, after the statement of claim was delivered, no further
definition could take place. The respondent, as represented
by
Diamond, has now defined the ambit of the dispute to include the new
claim eight. The Rules apply. The supplementation of
the statement
of claim is the means by which the respondent seeks to more clearly
define what is in dispute. This is allowed
by Rule 17. I see no
reason why the new claim does not fall within the declared dispute
since the ambit has been defined by Diamond.
This means that the
arbitrator had the power to consider and grant an amendment which
would result in the inclusion of the new
claim eight. The arbitrator
did not act beyond his powers in allowing the amendment.
Even if I am wrong that the applicant has agreed to the
definition of the dispute by the respondent, it is my view that the
applicant’s
interpretation of clause 11.2 is incorrect. The
appropriate interpretation of the clause therefore arises. The
approach to interpreting
documents has received recent attention
where Wallis JA said the following:
2
‘
The present state of the law can be
expressed as follows: Interpretation is the process of attributing
meaning to the words used
in a document, be it legislation, some
other statutory instrument, or contract, having regard to the context
provided by reading
the particular provision or provisions in the
light of the document as a whole and the circumstances attendant upon
its coming
into existence…A sensible meaning is to be
preferred to one that leads to insensible or unbusinesslike results
or undermines
the apparent purpose of the document.’
At para 19 the learned judge continued:
‘
. . . from the outset one considers the
context and the language together, with neither predominating over
the other.’
Clause 11.2 envisages that ‘any disagreement’
which arises between the parties provides the basis for a party to
declare
a dispute. Failing referral to, or resolution by, mediation
‘[the dispute] shall be referred to arbitration’. The
applicant appears to contend for a narrow, strictly grammatical
approach. The main feature of the applicant’s approach is
the
declaration of what clause 11.2 refers to as ‘a dispute’.
In other words, a single dispute. Each dispute must
be separately
declared. If the declaration identifies more than one dispute, these
can be referred to arbitration together. Once
a particular dispute
has, or disputes have, been formulated and declared, the arbitration
can deal with nothing else unless the
other party consents to this
being done. The applicant says that none of the items in the new
claim eight were referred to in,
or covered by, the declaration of
the dispute. If the respondent wishes to have the new claim eight
arbitrated, it must declare
a fresh dispute or disputes. This will
require a fresh arbitration or arbitrations before a different
arbitrator because the
applicant has not agreed to its inclusion in
the present arbitration.
Assuming, for the moment, that the words ‘a
dispute’ support this narrow grammatical construction, the
context of
clause 11.2 must be considered. Clause 11.2 came into
existence because it was recognised that disputes might arise from
the
agreement. The Rules are made to apply. A flexible, nuanced
approach to disputes is therefore envisaged where an appropriate
procedure can be applied. This allows certain disputes to be
informally arbitrated and others to be dealt with by a formal
approach.
Some might be resolved by the arbitrator functioning as an
expert. Some might require ‘pleadings’ and others not.
Not all would require formal evidence. Not all would require, or
even allow, legal representation. All should be dealt with
expeditiously. If, therefore, a dispute is declared by a person who
is not legally trained in terms that the other party does not
understand what is actually at issue, the Rules allow for more
precise definition in due course, including by way of a statement
of
claim. The apparent purpose of the clause is to have all disputes
between the parties which arise from the agreement arbitrated.
A
further purpose is to allow for appropriate procedures to deal with,
and even define, disputes. The purpose is clearly to have
disputes
resolved without recourse to the courts.
In this context and in the light of the grammar and
syntax used, I do not consider it sensible or businesslike to
interpret clause
11.2 to require a clear and precise formulation of
what is in dispute at the time a dispute is declared to the
exclusion of all
other disputes not mentioned at the time. Such an
approach would, for example, exclude a counterclaim if the claimant
who has
declared a dispute refuses to agree to its inclusion in the
arbitration arising from that declaration. Even if both parties have
declared disputes by the time of reference to arbitration, the
applicant’s approach allows one of the parties to insist
on
two arbitrations. This is because any arbitration can deal only with
‘a dispute’ absent agreement by the parties
to include
any others. This cannot be the correct interpretation of the clause.
The fact that the Rules allow for counterclaims
is a further
indication that this is not what clause 11.2 envisages. The
applicant’s approach also means that, as a party
becomes aware
of instances of breaches of the agreement by the other party, a
fresh dispute must be declared and a fresh reference
to arbitration
is necessary. The applicant says that a fresh dispute must be
declared even if a party becomes aware for the first
time during the
process of preparation for the arbitration of further claims against
the other party through documents, consultation,
reflection or
advice. I cannot conceive that clause 11.2 envisages a multiplicity
of arbitrations in circumstances where the
other party does not
agree to include a new claim such as this. The fact that the Rules
allow for the amendment or supplementation
of a statement of claim
is a further indication that clause 11.2 should not be interpreted
in the way contended for by the applicant.
In my view the correct
interpretation of clause 11.2 is that, once a dispute has been
declared, all claims between the parties
arising from the agreement
can be dealt with in the resultant arbitration, subject, of course,
to the discretion given to the
arbitrator in Rule 17.1.
This means that the arbitrator did not exceed his
powers when he allowed the amendment. Since there is no other basis
on which
it is sought to review that decision, the application for a
review and setting aside of the interim award must fail.
If it is found that the amendment was properly allowed,
the applicant claims, as an alternative, an order that the agreement
should
cease to have effect with reference to the dispute referred.
The applicant says, in essence, that the arbitrator, who is an
architect,
is not properly equipped to deal with the new claim
eight. This part of the application is based on s 3(2)(c) of
the Act
which provides as follows:
‘
The court may at any time on the
application of any party to an arbitration agreement, on good cause
shown –
(c) order that the arbitration agreement shall cease to have effect
with reference to any dispute referred.’
For arbitrations under the common law the point of
departure was clearly set out in the following terms by Dove-Wilson
JP in
Walters v Allison
:
3
‘
I think I have cited sufficient authority
to show that it is settled law in South Africa that an absolute
agreement to refer matters
in dispute to arbitration is a condition
precedent to litigation in the Law Courts, and that either party to
such an agreement
may be compelled by the other to have resort to
arbitration in the first instance.’
This is why the courts, in approaching applications
under s 3(2) of the Act, have almost all referred to the dictum
of Colman
J in
Metallurgical and Commercial
Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd
,
4
where he commented on good cause under that section as
follows:
‘
Such an
onus
is not easily discharged. There are certain advantages, such as
finality, which a claimant in an arbitration enjoys over one who
has
to pursue his rights in the Courts; and one who has contracted to
allow his opponent those advantages will not readily be absolved
from
his undertaking. In
Rhodesian Railways
v
Mackintosh,
1932
AD 359
, Wessels, ACJ (as he then was), held that the discretion of
the Court to refuse arbitration under a submission was to be
exercised
judicially, and only when a “very strong case”
for its exercise had been made out (see p.375). The Court was there
acting under a different statute from the one before me. But the
observation of Wessels, ACJ is none the less apposite here, because
it was based upon general principles.’
This means that the applicant bears an onus and, in
discharging it, must make out a ‘very strong case’ that
I should
exercise my discretion in its favour. The applicant makes
six submissions in support of the alternative claim in its heads of
argument. First, it says that the new claim eight in essence accuses
the applicant of fraud. Secondly, it says that the applicant’s
hard won good reputation is at stake. Thirdly, it says that a court
is better equipped to adjudicate on matters of credibility.
Fourthly, it says that the arbitrator is not equipped to deal with
the applicant’s prescription defence to the new claim
eight
since this is mainly a legal question. Fifthly, it says that the
arbitrator is not equipped to deal with the causation
and quantum of
damages arising in the claim. Sixthly, it says that there is no
provision for an appeal.
The applicant relies on the case of
Sera
v de Wet
5
where the court made an order in terms of s 3(2)(c) of
the Act. Here an architect had been appointed arbitrator pursuant to
a
clause in a building contract. The court held that, since serious
allegations had been made against the architect involving honesty
and integrity, and issues of credibility would need to be decided, a
court of law was better equipped than was the architect.
Further,
the main issue between the parties was a predominantly legal one.
As regards fraud and credibility, what is alleged in
the new claim eight is that, in breach of the agreement or as a
negligent
failure to use the required and professional skill and
diligence, the applicant failed to disclose to the respondent that
the
applicant was itself responsible for additional, wasted and
unnecessary costs when it was under a duty to do so. That is as far
as the averment goes. This is an almost exclusively factual issue.
In any event, the initial statement of claim included the
old claim
7 (which has now been abandoned). This was based on clear
allegations of fraud which would, if denied, have required
credibility findings relating to whether or not representations were
made by the applicant. The applicant did not object to the
arbitrator dealing with that dispute.
The applicant does not elaborate how the new claim
eight affects the reputation of the applicant in a way that the
originally
declared dispute, including those in the original
statement of claim did not. All that is said is that its ‘reputation
may be severely damaged by findings which the [arbitrator] should
not be required to make because he is not the appropriate person
to
make such findings (
inter alia
,
in relation to alleged non-disclosure and misrepresentation and
credibility).’ The non-disclosure and misrepresentation
referred to by the applicant concern the alleged failure to inform
the respondent that the applicant was itself responsible for
wasted
expenditure and the like mentioned above.
The applicant says that it will raise prescription of
the new claim eight. It was anticipated that legal questions might
arise.
In this regard, it was agreed, in the first pre-arbitration
conference, that ‘where reference is made to case law by
either
party, the party is to provide the Arbitrator with details
thereof’. This is a clear indication that argument concerning
legal principles was anticipated. Although the issue of prescription
had not been raised in the first pre-arbitration meeting,
it was
conceivable that it might emerge once the ‘pleadings’
had been exchanged. There is, in addition, no evidence
that the
arbitrator does not have the skills to deal with prescription which
largely requires findings of fact. A number of cases
have held that
the fact that the main dispute primarily involves a legal issue does
not in itself afford grounds for avoiding
the arbitration
agreement.
6
As regards the question of the causation and quantum of
damages, an architect would be well qualified to deal with these in
relation
to a construction agreement. The facts alleged in this
matter differ materially from those in
Sera
and do not, in my view, require that a court adjudicate
them.
The simplest answer to the alternative claim is that
the case which the applicant attempts to make out is based squarely
on an
objection to the qualifications of the arbitrator and not to
arbitration
per se
. A
case has not been made out that arbitration is not appropriate. A
strong case to that effect has certainly not been made out.
The
applicant submitted in argument that the arbitrator was chosen by it
because of the nature of the declared dispute. This
is not factually
accurate. The arbitrator was chosen and appointed before the dispute
had been defined. As is clear from the
applicant’s letter
exercising the choice of arbitrator, the definition of the scope of
the dispute was not clear and was
left to Diamond. The Rules provide
a mechanism for the removal of arbitrators. If the applicant feels
that the arbitrator is
not qualified, it can invoke these. This is
irrelevant to the enquiry as to whether arbitration proceedings
should not apply
to the dispute in terms of s 3(2)(c) of the
Act. The applicant has not made out a case for the relief sought.
The alternative
claim must therefore also fail.
The applicant submitted that, if it was not successful,
the costs of two counsel should not be allowed. I do not agree. The
two
counsel who prepared the heads of argument and appeared before
me also represented the respondent at the application before the
arbitrator for the amendment of the claim. The application itself
raises matters of some complexity and substance. It is clearly
a
matter of importance to both parties and it is my view that the
employment of two counsel was warranted where this took place.
In the result the application is dismissed with costs,
such costs to include the costs occasioned by the employment of two
counsel
where this was done.
DATE OF HEARING: 13 November 2012
DATE OF JUDGMENT: 29 November 2012
FOR THE PLAINTIFF: V Voormolen, instructed by Thorpe &
Hands Inc.
FOR THE SECOND
RESPONDENT: E A S Ford S C and D H De La Harpe,
instructed by Bax Kaplan Attorneys, locally represented by Cox Yeats.
1
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) para 56.
2
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA
593
(SCA) para 18.
3
1922
NPD 238
at 245.
4
1971
(2) SA 388
(W) at 391E-G.
5
1974
(2) SA 645
(T).
6
See,
e.g.,
Elebelle (Pty) Ltd v Szynkarski
1966 (1) SA 592
(W);
East Rand Proprietary Mines Ltd v Cinderella Consolidated Gold
Mines, Ltd
1922 WLD 122.