Brief Summary

Arbitration — Appointment of arbitrator — Dispute between siblings regarding boundary demarcation and costs of fencing — Appellant contests appointment of arbitrator and claims prescription of respondent's claim — Court finds that a dispute exists warranting arbitration and that the proposed arbitrator's fees are reasonable — Appellant's objections dismissed; arbitration to proceed with new arbitrator appointed.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an appeal to the High Court of South Africa (Northern Cape Division, Kimberley) against an order granted by the court a quo (Lacock J) in motion proceedings. The appeal was heard by Kgomo JP, Majiedt J and Molwantwa AJ, and judgment was delivered on 28 April 2006.

The appellant, Mr Leon Sandenbergh, is an attorney practising in Bellville in the Western Cape. The respondent, Mr Hercules Sandenbergh, is a farmer in the Prieska district in the Northern Cape. The parties are brothers and adjacent landowners by inheritance, and their dispute arose from the practical and financial consequences of re-establishing boundaries and related obligations.

The procedural history began with an action (Case 1367/98) in which the appellant (as plaintiff) sought the respondent’s eviction from part of a farm allegedly occupied unlawfully. That litigation was settled on 20 October 1999, and the Deed of Settlement was made an order of court. The settlement included mechanisms for resolving disputes about boundary fence costs and land surveyor fees, including arbitration by a named arbitrator (Mr J W Wilmans). When Mr Wilmans later withdrew due to a dispute regarding his fees, the respondent approached the court a quo to substitute a new arbitrator and to obtain related relief. The court a quo granted the substitution and also extended the time period for the arbitration award in terms of section 23 of the Arbitration Act 42 of 1965. The appellant then appealed, with leave.

The general subject-matter of the dispute concerned the enforceability and implementation of the settlement’s arbitration mechanisms, including whether the respondent’s claims had prescribed, whether the statutory time period for making an award should be extended, and whether the court could substitute an arbitrator in a settlement order.

2. Material Facts

The parties inherited adjacent farms pursuant to their late parents’ joint will. Historically, these farms had been worked as a consolidated unit for decades, and the boundary fence between them had collapsed, leaving uncertainty regarding the precise boundary. This lack of a clearly defined boundary contributed to disputes about occupation, fencing, and surveying.

In the earlier litigation (Case 1367/98), the parties settled and embodied their agreement in a court order on 20 October 1999. Material provisions for present purposes included that the respondent would contribute R30 000 towards the appellant’s legal costs and that disputes regarding (a) reasonable and necessary costs of erecting the boundary fence and (b) the land surveyor Mitchell’s fees for pegging the boundary fence were to be resolved by agreement, failing which they were to be referred to arbitration by Mr J W Wilmans, who would make a final determination.

The respondent referred the disputes to Mr Wilmans for arbitration on 29 June 2000, requesting him to determine a procedure. On 17 July 2000, Mr Wilmans responded, indicating he was willing to act as arbitrator on stated terms, including a fee of R800 per hour (VAT excluded) and a proposed procedure requiring the parties to provide documentation, written objections, reasons, and (if necessary) evidence at a hearing conducted in a manner akin to civil proceedings in the magistrates’ court.

The respondent’s attorneys forwarded Mr Wilmans’ letter to the appellant’s attorneys and sought confirmation of acceptance. On 2 October 2000, the appellant indicated to Mr Wilmans that his terms were acceptable and provided further information. Thereafter, Mr Wilmans indicated he still awaited the appellant’s reaction to proceed. By December 2000, Mr Wilmans complained of a lack of response from the appellant’s attorneys and warned of consequences.

In January 2001, the appellant’s attorneys for the first time challenged the R800 per hour tariff as excessive and suggested that non-acceptance rendered Mr Wilmans’ procedure nugatory. On 29 January 2001, Mr Wilmans declined to proceed at a reduced tariff and suggested another person be appointed so he could hand over the file. Subsequent correspondence reflected efforts by the respondent to retain Mr Wilmans or to secure agreement on a replacement arbitrator, but the appellant did not suggest alternative names, and at one stage stated that no useful purpose would be served by replying to correspondence and that he would not do so in future.

There was a later lull of approximately 18 months between August 2002 and March 2004. Ultimately, on 18 March 2004, the respondent launched an application in the court a quo seeking an amendment of the 1999 court order to substitute Mr Wilmans with retired Judge President M D J Steenkamp as arbitrator, together with ancillary relief relating to arbitration and costs. During argument, and in response to the appellant’s prescription point and reliance on section 23 of the Arbitration Act, the respondent obtained an amendment to seek an extension of the four-month statutory period for the making of an arbitration award, extending it to 28 February 2005.

The court a quo granted an order substituting Judge Steenkamp for Mr Wilmans, amending the settlement order accordingly, extending the award period to 28 February 2005, and ordering the appellant (as respondent in the application) to pay costs.

In the appeal proceedings, a preliminary dispute also arose regarding security for costs under Rule 49(13). The respondent objected to the form of security tendered by the appellant (a personal suretyship by a partner in the appellant’s law firm and a conditional trust payment). The appeal court issued an ex tempore order that the security was sufficient, reserving costs of that interlocutory issue for later determination.

3. Legal Issues

The appeal required determination of interrelated questions involving both statutory interpretation and the exercise of judicial discretion.

A central issue concerned the application of prescription: specifically, the meaning of the phrase “the debt is the object of a dispute subjected to arbitration” in section 13(1)(f) of the Prescription Act 68 of 1969, and the consequent postponement mechanism in section 13(1)(i). This was primarily a question of law (interpretation), applied to the established chronology of the parties’ conduct.

A second principal issue concerned section 23(b) of the Arbitration Act 42 of 1965, namely whether the respondent had shown “good cause” for extending the statutory time limit for making an arbitration award, notwithstanding delays and notwithstanding arguments that the arbitration had not properly commenced. This required an assessment of law and discretion, informed by the factual record of cooperation or obstruction.

A further issue was whether the court a quo was correct to substitute a new arbitrator (Judge Steenkamp) for the named arbitrator (Mr Wilmans) in the settlement order, given that the original arbitrator had withdrawn and the parties could not agree on a replacement. This involved the application of the settlement order and arbitration framework to the changed circumstances.

Finally, the court had to determine whether the appellant had furnished “good and sufficient security” for costs on appeal in terms of Rule 49(13), and how costs should be allocated in respect of the interlocutory security application and the appeal as a whole.

4. Court’s Reasoning

On the section 23(b) extension question, the appeal court treated the matter as the extension of a statutory time limit, not condonation for non-compliance with a rule of court. The court emphasised that section 23(b) permits extension “on good cause shown”, whether the time has expired or not. On a conspectus of the record, the court considered that the respondent had placed before the court extensive evidence of repeated attempts—through his attorneys and through Mr Wilmans—to move the arbitration forward, and that the matter did not reflect a simple default by the respondent.

Although the record showed a substantial delay (including an 18-month period before the March 2004 application), the court endorsed the essential finding that the failure to complete arbitration within the statutory period was attributable primarily to the appellant’s lack of cooperation and obstruction, including late challenges to the arbitrator’s fee and prolonged failure to engage meaningfully with requests to appoint an alternative arbitrator. Against that background, the appeal court held that the respondent had shown good cause and that there was no basis to interfere on appeal with the discretion exercised by Lacock J.

The prescription argument turned on whether, notwithstanding the stalled arbitration and Mr Wilmans’ withdrawal, the disputes had been “subjected to arbitration” so as to delay completion of prescription under section 13(1)(f) and (i) of the Prescription Act. The appellant contended that because Mr Wilmans’ willingness to act was expressed as conditional, and because he later declined to proceed, the debt was never truly subjected to arbitration. The court rejected this, holding that in ordinary grammatical usage the phrase “subjected to arbitration” denotes the referral or submission of the dispute for arbitration, rather than the later stage of an arbitrator’s acceptance, assumption of jurisdiction, or substantive commencement.

In support of this construction, the court accepted the interpretive approach adopted in the court a quo: the ordinary meaning was consistent with the Legislature’s apparent intent to prevent prescription running while a creditor pursues an approved alternative dispute-resolution process. The court relied materially on Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality 1984(1) SA 571 (A), treating it as authority that prescription is delayed once the parties have entered upon the dispute-resolution process constituting arbitration, and that “subjection” is satisfied by the submission of the dispute to the designated mechanism. The court reasoned that an interpretation postponing subjection until an arbitrator formally assumes jurisdiction would be untenable and could lead to impractical or absurd outcomes.

The court engaged with the authorities invoked by the appellant, distinguishing Bhoola v Bhoola 1945 NPD 109 on the basis that it addressed a different statutory and conceptual question: when arbitrators “enter upon the reference”, which concerned commencement of the three-month period under earlier arbitration legislation and depended on the full constitution and acceptance of a multi-member tribunal. The court noted the conceptual distinction, also reflected in section 23(a) of the Arbitration Act 42 of 1965, between an arbitrator’s “entering on the reference” and being “called on to act”. Similarly, the court distinguished Members of the Sugar Industry Central Board v Maritz and Another 1984(4) SA 101 (T) as a case about whether a mere agreement to arbitrate (without initiation) delays prescription; by contrast, in the present matter the respondent had moved beyond a bare agreement and had initiated arbitration by referring the dispute to the named arbitrator. The court also observed that the tenor of the Sugar Industry decision supported the view that the impediment arises when a creditor takes appropriate steps, namely initiating arbitration proceedings.

The court also addressed a fairness-related point arising from the appellant’s stance. It reasoned that, had the appellant considered the arbitration unreasonably delayed or redundant, he could have sought relief under section 3(2) of the Arbitration Act 42 of 1965. The appellant did not do so, and the court accepted the finding that it was the appellant who was largely responsible for delay. The court therefore concluded that prescription had not run its course in the manner alleged by the appellant.

On the substitution of the arbitrator, the court’s reasoning flowed from the above conclusions. It accepted that the settlement order contemplated arbitration to resolve defined disputes and that the withdrawal of Mr Wilmans created a practical impasse. In circumstances where the parties could not agree on a replacement and where the respondent sought an amendment to the court order to give effect to the arbitration mechanism, the appeal court found no appealable error in the substitution ordered by the court a quo.

On the security for costs issue, the court held that Rule 49(13) does not prescribe a specific form of security, but requires good and sufficient security, assessed objectively against the risk of non-payment. While acknowledging that an attorney’s personal suretyship is unusual and should be discouraged, the court held that in the circumstances it was sufficient. The court took into account uncontroverted facts including the appellant’s professional standing as an attorney and officer of court, his financial means, the surety’s standing, and the relatively modest amount involved (R45 000). The court therefore confirmed that the appeal should proceed and later determined that the reserved costs of that interlocutory dispute should follow the outcome of the appeal.

5. Outcome and Relief

The appeal court dismissed the appeal and upheld the order of the court a quo, including the substitution of Judge M D J Steenkamp as arbitrator and the extension of the time period for making an arbitration award to 28 February 2005.

The appellant was ordered to pay the costs of the appeal. The court further directed that such costs were to include the costs of the respondent’s interlocutory application under Rule 49(13) relating to security for costs.

Cases Cited

Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Munisipaliteit 1982(3) SA 385 (NC).

Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality 1984(1) SA 571 (A).

SA Breweries v Grinaker Construction 1986(1) SA 191 (D & CLD).

Bhoola v Bhoola 1945 NPD 109.

Members of the Sugar Industry Central Board v Maritz and Another 1984(4) SA 101 (T).

Majunga Food Processes SARL v SA Dried Fruit Co-operative Ltd 2000(2) SA 94 (C).

Ridon v Van der Spuy and partners (Wes-Kaap) Inc 2002(2) SA 121 (C).

Legislation Cited

Prescription Act 68 of 1969, section 13(1)(f) and section 13(1)(i).

Arbitration Act 42 of 1965, section 1 (definition of “arbitration agreement”), section 3(2), section 23(a), and section 23(b).

Rules of Court Cited

Uniform Rules of Court, Rule 49(13).

Held

The court held that the respondent had shown good cause under section 23(b) of the Arbitration Act 42 of 1965 for extending the time period within which an arbitration award had to be made, and that the court a quo’s extension to 28 February 2005 involved no appealable misdirection.

The court held further that, for purposes of section 13(1)(f) of the Prescription Act 68 of 1969, a dispute is “subjected to arbitration” when it is referred or submitted to arbitration. The court rejected the contention that such subjection requires the arbitrator to have accepted appointment, assumed jurisdiction, or commenced substantive proceedings, and concluded that the respondent’s initiation of arbitration delayed completion of prescription as contemplated by sections 13(1)(f) and 13(1)(i).

The court also held that the security for costs tendered by the appellant constituted good and sufficient security under Rule 49(13) on an objective assessment of the circumstances, notwithstanding that a personal suretyship by an attorney was regarded as a practice to be discouraged.

LEGAL PRINCIPLES

The discretion to extend the statutory time limit for making an arbitration award under section 23(b) of the Arbitration Act 42 of 1965 depends on whether good cause is shown on the papers, and an appeal court will not interfere absent a material misdirection in the exercise of that discretion.

For purposes of section 13(1)(f) of the Prescription Act 68 of 1969, a debt becomes the object of a dispute “subjected to arbitration” upon the referral or submission of the dispute to arbitration, and not only once an arbitrator has accepted appointment or entered upon the reference. The consequent postponement mechanism in section 13(1)(i) operates to prevent completion of prescription until at least one year after the relevant impediment ceases.

Under Rule 49(13), security for costs on appeal must be good and sufficient, and the adequacy of security is assessed with reference to the objective risk of non-payment in the particular circumstances; the rule does not prescribe a single mandatory form of security.

Sandenbergh v Sandenbergh (293/2004) [2006] ZANCHC 27 (28 April 2006)