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[2009] ZAKZPHC 19
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Lafarge Industries South Africa (Pty) Ltd v Howick Retirement Villages (Pty) Ltd (2142/2008) [2009] ZAKZPHC 19 (13 May 2009)
IN THE
HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL,
PIETERMARITZBURG
CASE NO
: 2142/2008
In
the matter between:
LAFARGE INDUSTRIES SOUTH
AFRICA
(PTY) LIMITED
Plaintiff
and
HOWICK RETIREMENT VILLAGES
(PTY)
LIMITED
Defendant
JUDGMENT
Delivered
on 13 May 2009
SKINNER,
AJ:
1
This
matter came before me for argument on the plaintiff’s special
plea. The plaintiff had instituted action against
the defendant
during January 2008 for payment of the sum of R548 972.92 which
it alleged was owing in respect of the price
of certain readymix
concrete supplied by the plaintiff to the defendant. The action
was opposed and the defendant filed a
plea in which it averred that
it had in fact overpaid the plaintiff by an amount of R368 428.61
and further that the concrete
supplied was defective which would
cause the defendant to have to re-do a large area at a cost of
R7 205 265.53.
The defendant claimed both these
amounts by way of a claim in reconvention.
2
The
plaintiff raised a special plea to the claim in reconvention in which
it sought that the claim in reconvention be stayed pending
the final
determination of the dispute concerning the quality of the concrete
supplied by arbitration in accordance with the rules
of the
Arbitration Foundation of Southern Africa. The defendant
replicated to the special plea by averring that in terms
of the
agreement between the parties only the plaintiff had an election to
refer the matter to arbitration or to proceed directly
to the
jurisdiction of the courts and that since it had elected to institute
proceedings, this constituted an election and it was
bound by it.
The defendant accordingly contended that the matter could not be
referred at this stage to arbitration.
3
The
parties had, it was common cause, contracted on the basis of the
plaintiff’s standard terms and conditions of trading.
These contained the following provision:
“
18.
RESOLUTION OF TECHNICAL DISPUTES
18.1
In the event of a dispute arising between the Company [i.e. the
plaintiff] and the Customer
[i.e. the defendant], the basis of which
dispute is the quality, quantity or performance of the Product
supplied by the Company,
such dispute shall initially be referred to
the Company’s local plant manager and the Customer’s site
manager, who
shall, within seven days after such referral, meet and
use commercially reasonable endeavours to resolve such dispute.
18.2
If they are unable to resolve the dispute then the matter shall be
referred
to the Company
’
s
and the Customer
’
s
Regional General Managers who shall likewise meet within seven days
after such referral and use commercially reasonable endeavours
to
resolve the dispute.
18.3
If the dispute is still not resolved, then the matter shall be
referred, at
the Company
’
s
election, to :
18.3.1
an
independent expert appointed by the Cement and Concrete Institute;
or
18.3.2
arbitration
in accordance with the Rules of the Arbitration Foundation of
Southern Africa; or
18.3.3
proceed
directly to the jurisdiction of the Courts in terms of Clause 5.
18.4
Neither the Company nor the Customer may resort to the jurisdiction
of the Courts in terms
of Clause 5 without first following the
procedure in Clauses 18.1 and 18.2.”
4
It
is clear from the aforegoing that only the plaintiff had the election
whether to proceed to arbitration or to proceed to the
courts.
It is further clear that clause 18 was only applicable if there was a
dispute the basis of which was
“
the
quality, quantity or performance
”
of
the concrete supplied.
5
The
plaintiff in its special plea averred that the claim in reconvention
raised a dispute of a technical nature concerning the quality
of the
concrete supplied and further averred that such dispute fell in terms
of clause 18.3.2 to be decided by arbitration.
The special plea
further averred “the defendant has not referred this technical
dispute to arbitration as it is obliged to
do in terms of clause
18.3.2.” Mr Broster SC who appeared on behalf of the
plaintiff conceded that the aforegoing averment
was entirely
incorrect. He submitted however that it could and should be
regarded as
pro non scripto
as it was superfluous to the
contention raised in the special plea that the present dispute fell
under clause 18.3.2 and therefore
had to be decided by arbitration.
I am in agreement with this submission. The averment is
unnecessary and does not
detract from the issue raised by the special
plea.
6
It was
common cause between the parties that the procedures referred to in
clauses 18.1 and 18.2 had been followed but these had
not resulted in
resolving the dispute. It was further common cause that at no
time had the plaintiff advised the defendant,
either in writing or
orally, that it was making an election that the dispute regarding the
quality of the concrete was to be referred
to arbitration. Mr
Broster SC submitted that the delivery of the special plea
constituted an election by the plaintiff that
the claim in
reconvention should be referred to arbitration.
7
In
response thereto Mr Joubert for the defendant relied upon the
authority of
Santam Insurance Limited v Cave t/a The Entertainers
and the Record Box
1986 (2) SA 48
(AD). At first sight such
matter is in point and overwhelmingly in favour of the defendant.
The appeal court at page
56 B – D held that :
“
The
arbitration clause clearly provides that the condition precedent to
any right of action or suit only comes into operation if
and when the
appellant exercises its right to require the dispute to be referred
to arbitration. If the appellant does not
exercise that right
the respondent is free to commence his action or suit, for there is
then no condition precedent in operation
to prevent him from doing
so. When an action has been instituted the appellant will
obviously not be able, by thereafter
raising a dispute as to the
amount of the claim, to cause the condition precedent to come into
operation with retrospective effect.”
8
In my
view however the judgment is distinguishable from the present
situation. I should point out that the learned Judge was
not
describing a general principle – this is clear from his use of
the words in the passage quoted “appellant”
and
“respondent”. With respect it appears that he had
in mind pertinently the facts of that particular case.
The
insurance company had repudiated the claim on two bases – the
failure by the insured to comply with an endorsement that
burglar
bars be installed on all the windows, and secondly that action had
not been instituted timeously in terms of the time-bar
provisions of
the contract of insurance. The appeal court held at page 57 B –
D :
“
In
the instant case, as is clear from the appellant’s letters of
24 February 1982 and 15 March 1982, there was a complete
and
unequivocal rejection of the respondent’s claim. No
correspondence passed between the parties that could give rise
to a
dispute as to the amount of the claim. There was thus no
dispute in existence and no room nor opportunity for anything
to be
done under the arbitration clause.”
9
The
second letter referred to in the extract quoted indicated that the
insured could not proceed to enforce his claim in the event
of the
insurance company disputing the amount of the claim and that in such
event the matter should be submitted to arbitration.
It
accordingly issued an invitation to the insurance company to advise
the insured within one week whether it was prepared to admit
the
claim and if it continued to dispute liability whether it was
prepared to admit the amount of the claim in order to obviate
any
arbitration proceedings. The insurance company did not reply to
this letter.
10
At page
55 D – H the court held :
“
The
arbitration clause deals with the situation where a difference arises
as to the amount of the loss or damage suffered by the
insured.
In that event the insurer has an election of either allowing the
insured to institute action against it for the
amount claimed or of
requiring that the difference be referred for a decision to
arbitration. In the latter case the insurer
has in terms of the
arbitration clause a right to require that the matter be referred to
arbitration and if that right is exercised
by the insurer, it is then
a condition precedent to any right of action or suit upon the policy
that the award by the arbitrator
of the amount of the loss or damage
be first obtained. This clause has relevance and application
only if and when two essential
requirements have been satisfied,
namely (a) there must be in existence a difference between the
parties as to the amount of the
loss or damage, and (b) the insurer
must have exercised its right by actually requiring that the
difference be referred for a decision
to arbitration. The
parties by including this arbitration clause in the policy manifestly
intended to afford the insurer
the right and opportunity to have the
disputed amount determined by arbitration if it should so desire
because if it should exercise
that right no action or suit against
the insurer may be commenced until the award is first obtained.
The condition precedent
comes into operation only after the insurer
has actually exercised its right to require that the disputed amount
of the loss or
damage be determined by arbitration. If there is
no dispute then there is obviously nothing that can be referred to
arbitration.”
11
In my
respectful view the court, in relation to the facts before it, was
pointing out that there was not and could not be any dispute
between
the parties as to the amount of the claim because the insurance
company had completely and unequivocally rejected the claim
and had
further declined the invitation to admit the amount of the claim even
if disputing liability to pay the claim. There
was therefore
nothing that had to be referred to arbitration. The insurance
company had to exercise its right to refer the
matter to arbitration
and if it did not exercise such right then the insured was free to
commence the action because there was
no condition precedent in
operation at the time to prevent him from doing so. The view of
the court that the insurance company
could not thereafter raise a
dispute condition precedent to come into operation with retrospective
effect is with respect understandable
and correct. By its
conduct and by its refusal to respond to the invitation to indicate
its attitude as to agreeing the amount
of the claim while disputing
the liability, the insurance company could only be regarded as having
made an election not to refer
the matter to arbitration. It
could then in those circumstances not seek retrospectively to raise a
dispute which had clearly
not existed between the parties and thereby
prevent the insured from continuing with an action which he had been
entitled to commence.
12
In the
present case, the issuing of proceedings by the plaintiff does not in
my view constitute any form of election. The
claim of the
plaintiff had nothing to do with any dispute regarding the quantity
or quality of the concrete supplied and could
by no stretch of the
imagination by described as a “technical dispute”.
The claim in reconvention is however
of a very different nature and
undeniably is a technical dispute concerning the quality of the
concrete. There is no suggestion
in the present case of the
plaintiff having declined or failed to respond to any invitation to
make the election as to whether
to proceed to arbitration. The
defendant in its replication had not raised any issue of estoppel in
the sense of the plaintiff
being estopped from electing to refer the
matter to arbitration in the light either of any conduct by it or of
any unreasonable
delay by it in making an election.
13
This is
not an instance of a party when sued seeking to raise a dispute which
previously had not existed and then utilising such
dispute as a
condition precedent with retrospective effect. Further, the
plaintiff in instituting action on its claim was
not falling under
the provisions of clause 18 since it was not proceeding directly to
the jurisdiction of the courts in a dispute
of a technical nature.
14
For
these reasons I respectfully consider that the present case is
distinguishable on its facts from the judgment in the
Santam
case
supra. In those circumstances the plaintiff was entitled on
receipt of the claim in reconvention to raise the special
plea that
the matter should be referred to arbitration.
15
There
was no contention on behalf of the defendant that this was not an
appropriate matter to be referred to arbitration.
Indeed
because of the technical nature of the dispute it seems a matter that
is eminently suitable to be referred to an arbitrator
with the
requisite technical expertise and knowledge. There is
accordingly no reason for me not to uphold the provisions
of the
arbitration clause.
16
During
argument I raised with the respective counsel whether, if I were to
find that the special plea should be upheld, the entire
action should
not be stayed rather than merely the claim in reconvention. The
reason for this is that the defence to the
claim by the plaintiff is
to a very large extent dependent on succeeding in the claim in
reconvention and if that is stayed the
defendant would not properly
be able to raise its defence in the trial on the plaintiff
’
s
claim. Mr Broster SC agreed that if I found that the special
plea had merit, the entire action should be stayed. Mr
Joubert
preferred to abide whatever decision I reached on that aspect.
17
I
accordingly make the following order :
(a)
The
special plea of the plaintiff that the claim in reconvention of the
defendant should be stayed pending the final determination
of the
dispute by arbitration in accordance with the Rules of the
Arbitration Foundation of South Africa is upheld.
(b)
The
claim in convention as well as the claim in reconvention is stayed
pending the determination of such arbitration.
(c)
The
defendant is directed to pay the costs of the plaintiff occasioned by
the special plea including the costs of the hearing of
the opposed
motion.
_______________________
SKINNER,
AJ
Acting
Judge of the High Court
KWAZULU-NATAL,
PIETERMARITZBURG
Date of
hearing
:
8 May 2009
Date of
Judgment
: 13
May 2009
Counsel
for Plaintiff
:
Mr. L. Broster S.C.
Instructed by :
Cox Yeats
Counsel
for Defendant
:
Mr D. Joubert
Instructed by :
Randles
Incorporated