THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 476/2023
In the matter between:
KROHNE (PTY) LTD APPELLANT
and
STRATEGIC FUEL FUND ASSOCIATION RESPONDENT
Neutral Citation: Krohne (Pty) L td v Strategic Fuel Fund Association
(Case no 476/2023) [2024] ZASCA 99 (14 June 2024)
Coram: NICHOLLS, MOTHLE and MOLEFE JJA and SMITH and
MBHELE AJJA
Heard: 9 May 2024
Delivered: This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the Supreme Court of Appeal
website and release d to SAFLII. The date and time for hand -down of the
judgment is deemed to be 14 June 2024 at 11h00.
Summary: Arbitration law – whether the appellant’s claim, based on the
enforcement of an arbitral award is founded on a valid cause of action – whether
the trigger event in the arbitral award has occurred – whether the paragraphs of
the appellant’s replying affidavit as set out in the respondent’s strike -out
application falls to be struck out.
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______________________________________________________________
ORDER
______________________________________________________________
On appeal from : Gauteng Division of the High Court, Johannesburg
(Wanless AJ, sitting as court of first instance):
1 The appeal is upheld with costs, including the costs of the application
for leave to appeal, such costs to include the costs consequent upon
the employment of two counsel.
2 Orders 1 to 4 of the high court are set aside and replaced with an order
in the following terms:
‘The second point in limine raised by the respondent is dismissed with
costs, such costs to include the costs consequent upon the
employment of two counsel.’
3 The matter is remitted to the high court to be determined on the merits.
______________________________________________________________
JUDGMENT
______________________________________________________________
Mothle JA (Nicholls and Molefe JJA and Smith and Mbhele AJJA
concurring)
[1] The crisp issue in this appeal is whether the appellant’s claim against
the respondent, based on the enforcement of an arbitral award (‘the interim
award’), is founded on a valid cause of action.
[2] Krohne (Pty) Limited (the appellant) instituted motion proceedings in
the Gauteng Division of the High Court, Johannesburg (the high court),
wherein it claimed payment of the agreed outstanding balance, with interest,
in terms of a service contract concluded with the Strategic Fuel Fund
Association (the respondent). The high court dismissed the claim on the basis
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that the appellant did not have a valid cause of action . The high court issued
the following orders:
‘1. The application is dismissed.
2. The Applicant is to pay the costs of the application, such to include the costs of
two counsel.
3. The interlocutory application instituted by the Respondent for the striking out of
paragraphs 5.2, 5 .7, 5.12 to 5.14 and 8 to 12 .7 of the Applicant’s undated replying
affidavit, deposed to by Mr George Topper and filed on the 15th of May 202 [0], is
postponed sine die.
4. Each party is to pay their own costs in respect of the aforesaid interlocutory
application.
5. The Respondent is to pay to the Applicant the sums of 60 689.50 US Dollars (or
the equivalent in South African rands); R150 799.91; 67 859.49 Euros (or the
equivalent in South African rands) and 10 264.35 British Pounds (or the equivalent in
South African rands).
6. The Respondent shall pay to the Applicant interest on the amounts as set out in
paragraph 5 above calculated at the rate of 10% per annum from the 27th of October
2019 to the date of final payment, both days inclusive.
7. The Respondent shall pay the costs in respect of the application by the Applicant
insofar as same pertain only to the amounts as set out in paragraph 5 hereof which
will be determined by the Taxing Master, such to include the costs of two Counsel.’
[3] The appellant successfully applied for leave to appeal paragraphs one
to four (excluding paragraphs five and six) of the order of the high court. It is
thus with leave of the high court that this appeal is before us.
[4] It is common c ause between the parties that t he respondent was
established in 1964 as a s 21 non -profit company. It acquires, maintains,
monitors and manages South Africa’s strategic energy feedstocks and
carriers, in order to ensure security in the supply of energy. The respondent’s
oil storage installation at the Saldanha Terminal comprises six in -ground
oil storage installation at the Saldanha Terminal comprises six in -ground
concrete storage tanks, with a combined capacity of 45 million barrels of oil. A
crucial aspect of the respondent’s function is to be able to measure accurately
the precise volume of crude oil that is discharged into the tanks and
subsequently exported out. To achieve this mandate, in February 2011, the
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respondent issued a tender, to procure service providers. The appellant
entered the competitive bidding process.
[5] The appellant is an international manufacturer of custody metering
systems, which in January 2012, successfully tendered for the supply,
installation and commissioning of the metering system at the Saldanha
Terminal. In terms of the contract concluded with the respondent, the
appellant’s services included ‘…the designing, calibration and installation of
metering cabinets, flow computers and master meter ing skids and all associated
electrical reticulation, including necessary and associated equipment for the system’
(the KOG metering system). It was a term of the contract that payment for the
services would be made in tranches, with the final 10% being retained as a
performance retention fee, payable upon completion and certification of the
appellant’s performance of the services.
[6] A dispute arose between the appellant and the respondent in regard to
the accuracy of the KOG metering system. The appellant contended that it
had completed its task as contracted and was entitled to payment of the 10%
balance of the contract price. On demand of such payment, the respondent
raised the query that the installed system did not operate within the
specification agreed to in the contract , which is within the accuracy range of
0.3% (positive or negative) , as set out in the International Metrology
Organisation Standard OIML R117 -1, 2007 Edition, Section 2.4 Accuracy
Classes.
[7] The parties agreed to refer that dispute to arbitration as per Clause 171
of the contract. An arbitrator , Advocate CHJ Badenhorst SC was appointed
and at the commencement of the arbitration, the parties reached a settlement
agreement, whereby they agreed to refer the question of the accuracy of the
KOG metering system to a third-party expert for determination. The settlement
1 Clause 17 provides that disputes shall be resolved and determined by an arbitrator whose
1 Clause 17 provides that disputes shall be resolved and determined by an arbitrator whose
decision ‘shall be final and binding, and save in the case of manifest error, shall not be
subject to appeal and/or review.’
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agreement was endorsed by the arbitrator, who issued it as an interim award .
Of significance, the interim award, whose material terms are stated as follows:
‘1. The arbitration is postponed sine die.
2. The costs of the arbitration are reserved . . .
5. Within 30 days from date hereof the parties shall jointly nominate and appoint an
appropriately qualified and experienced specialist from an independent third party
(intended to be SGS) (“the independent expert”). The findings of the independent
expert shall be final and binding on the Claimant and Respondent…
6. The terms of reference of the independent expert shall be:
6.1 to conduct an assessment of the system to establish whether the system
operates within the specification agreed to by the parties in their agreement
[contract], and within the accuracy range of 0.3% (positive and negative) as set out in
OIML R117-1 edition, section 2.4 Accuracy Classes and the South African National
Standards; and
6.2 to ascertain why the meter readings obtained by the Claimant’s [as in the
arbitration] Krohne meters and the static measurements obtained by the
Respondent’s [in the arbitration] current system are so far apart, and to make
recommendations of what measures, if any, can be implemented so as to bring the
conflicting measurements as close together as possible. . .
8. In the event of the independent expert concluding that the system operates as set
out in paragraph 6.1 above, within 30 days of such determination, the Respondent
shall:
8.1 reimburse the Claimant that portion of the independent expert’s costs paid by the
Claimant;
8.2 pay the capital sum of R 7 669 363.74 claimed in p rayer 3 of the Statement of
Claim, together with mora interest thereon calculated at the rate of 9.5% per annum
from 1 April 2014 to date of payment; and
8.3 pay the Claimant’s legal costs of the arbitration proceedings as either agreed or
taxed . . .
10. The Respondent undertakes to pay to the Claimant the full amount of
taxed . . .
10. The Respondent undertakes to pay to the Claimant the full amount of
R7 669 363.74 once the independent expert certifies that the system operates as set
out in paragraph 6.1 . . .’
[8] The parties appointed SGS Gulf Limited (SGS) as the third -party
expert. The terms of reference of the independent exper t are stated in
clause 6 of the interim award . SGS consultant, Mr Jim McCabe, conducted
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the design review of the KOG metering System in stages, issuing a report at
the end of each stage, with the first report dated 19 October 2017. SGS’s
Final Report was issued on 20 September 2019.
[9] On 14 October 2019, the appellant’s attorneys, represented by Mr Alan
Jacobs, sent an email to the respondent’s attorneys, which read in part thus:
‘Dear Marius [‘Diemont’]
Further to the report received from SGS and their findings, I refer you specifically to
their summary at point 2 which is entitled “Management summary”.
You will note that the last paragraph under this heading confirms that my client’s
metering systems operate within the specification agreed to by the parties.
In view of the above confirmation, kindly let me have payment from your client of the
total capital balance outstanding including interest which my client has calculated,
and I attach the calculation, demonstrating the outstanding amount of
R12 745 881.89 . . .’
[10] The appellant received no response from the respondent’s attorneys,
even after a reminder in the e-mail of 12 November 2019. The appellant then
issued an application in the high court in which he claimed payment on the
basis of the SGS report, contending that the report disposed of the dispute
between the parties. The respondent filed an answering affidavit in which it
stated that the certificates issued by SGS ‘do not serve as evidence of a
certification by SGS of the operation of the system, but merely of the manner
in which it was designed and installed by Krohne, which is not the subject of
the dispute referred to in the settlement agreement’. (Emphasis added.)
[11] The responde nt, in the answering affidavit, in essence raises two
contentions in opposition to the appellant’s claim. The first, with reference to
clause 8 of the settlement agreement (the interim award), is that ‘In the event
of the independent expert [SGS] concluding that the system operates as set
of the independent expert [SGS] concluding that the system operates as set
out in paragraph 6.1 [of the mandate] above [i.e. within the specification
agreed upon in terms of the agreement, and within the accuracy range of
0.3% (positive or negative), within 30 days of such determination, the
Respondent [SFF] shall: reimburse the Claimant . . .’ This was the trigger
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event for payment of the retention amount, as foreshadowed in the settlement
agreement. (Emphasis added.)
[12] Second, and related to the trigger event, was the question whether
after the trigger event had been met, would there still be outstanding issues in
dispute between the parties, which would require adjudication by the
arbitrator? The high court determined the matter on a completely different
question which was not the central dispute in the affidavits. It was a question
raised in the respondent’s argument, namely whether the appellant was
barred from advancing a cause of action based on the arbitral award.
[13] In dismissing the application , the high court reasoned and found in
paragraphs 30, 31, 32, 35, 36 and 38, respectively, of its judgment thus:
‘…The parties did not elect to place their dispute before a court which potentially
could have given rise to the appointment of referee. Neither did they elect, without
going to arbitration, to appoint an expert whose decision would be binding upon them
and finally resolve the dispute . So it is to the provision of the Arbitration Act that this
Court must look in order to decide whether the Applicant can rely on the Final Report
by the expert to seek payment by the Respondent of the capital amount in terms of
the Interim Award.
The crisp question then becomes whether the Interim Award complies with the
provisions of the Arbitration Act or is in conflict therewith. The answer thereto is that
the Interim Award is patently in conflict with material provision s of the Arbitration Act.
To begin, the very definition of “ arbitration proceedings” makes it clear that these
proceedings are ones which are conducted by an arbitration tribunal for the
settlement by arbitration of a dispute which has been referred to arbitration in terms
of an arbitration agreement. . .
In addition thereto, no provision was made in the Interim Award for the findings of the
In addition thereto, no provision was made in the Interim Award for the findings of the
expert (in whatever form these findings were eventually contained) to be brought
before the Arbitrator to be made an award a s defined in the Arbitration Act. Hence,
there was no compliance with the peremptory provisions of subsection 24(1) of the
Arbitration Act. . .
Of course, what would have been permissible was for the parties to have agreed,
with the consent of the Arbitrator, to seek the opinion of an independent expert on the
workings of the system. This opinion could have proven invaluable to assist the
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Arbitrator in resolving the dispute. Of course, it could also have had the practical
effect of either bringing about a settlement of the dispute between the parties or, at
the very least, narrowing the technical issues in dispute between the parties. But this
report could never be final and binding upon the parties in terms of the Arbitration
Act. It is for this reason, as pointed out by Adv Jamie SC, that the Arbitrator possibly
made the orders in the Interim Award whereby the arbitration proceedings were
postponed sine die and the costs of the arbitration proceedings were reserved. . .
Most importantly, the present application would never have seen the light of day and
the various grounds of opposition, as raised by the Respondent (not without merit),
would have been avoided (as would the incurring of costs ). The aforegoing confirms
(if confirmation is necessary) the correctness of the finding by this Court that the
point taken by the Respondent that the Applicant is barred from advancing a cause of
action based on the enforcement of an arbitral award, is a good one.
In light of the finding by this Court that the Applicant has no valid cause of action in
respect of its claim for the capital sum, it is not necessary for this Court to deal with
the remaining grounds of opposition raised by the Respondent thereto. This is so
(despite this Court spending a great deal of time considering same) since the finding
made disposes of the claim in respect of the capital sum in its entirety.’
[14] Before dealing with the high court’s reasoning and conclusion as
quoted above, it is apposite to revisit the trite concept of the arbitration. The
Arbitration Act 42 of 1965 (the Act) , defines an arbitration agreement as ‘a
written agreement providing for the reference to arbitration of any existing
dispute or any future dispute relating to a matter specified in the agreement,
whether an arbitrator is named or designated therein or not’. Section 3(1) of
whether an arbitrator is named or designated therein or not’. Section 3(1) of
the Act provides that ‘ [u]nless the agreement otherwise provides, an
arbitration agreement shall not be capable of being terminated except by
consent of all the parties thereto’.
[15] This Court in Total Support Management (Pty) Ltd and Another v
Diversified Health Systems (SA) (Pty) Ltd and Another ,2 stated as follows:
‘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
2 Total Support Management (Pty) Ltd and Another v Diversified Health Systems (SA) (Pty)
Ltd and Another [2002] ZASCA 14; 2002 (4) SA 661 (SCA) at para 25.
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adjudication, and are equally free to modify or withdraw that power at any time
by way of further agreement. This is reflected in s 3(1) of the Act.’ An
arbitration is thus a product of an agreement.
[16] It is common cause, that the parties agreed in the contract of service,
to have an arbitration clause, in this case clause 17 of the contract. It is further
common cause that when a dispute was declared, the parties agreed to
resolve the dispute through arbitration. They activated clause 17 of the
contract. Prior to the commencement of the arbitration, they entered into a
settlement agreement, to refer the essence of the dispute to an independent
expert. The settlement agreement was made an interim award by the
arbitrator, which in terms of s 1 of the Act, is an award. Therefore, the
arbitration’s jurisdiction, powers, procedures and processes were driven by
agreement and consent between the parties to the dispute. (Emphasis
added.)
[17] The high court erred in its approach when it digressed from the main
dispute raised in the papers, and dealt with a collateral issue raised in
argument, styled as a point in limine. The issue before the high court was not
the validity or otherwise of the interim award. The issue before the high court
was whether the SGS report concluded that the system operated as set out in
clauses 8, 9 and 10, read with clause 6.1 of the interim award. Clause 10 of
the interim award was the agreed condition precedent to the payment being
affected, in terms of the interim award. The high court thus misconstrued the
issue to be decided before it.
[18] The high court also erred in concluding that the SGS report was not
final and binding between the parties. It is evident from clause 5 of the interim
award, that the SGS report would be final and binding on the parties. Clause 5
of the interim award provides that ‘the findings of the independent expert shall
be final and binding on the Claimant and Respondent.’ It is the finding in the
be final and binding on the Claimant and Respondent.’ It is the finding in the
final report of SGS which constitutes the cause of action.
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[19] The high court further erred in stating the following: ‘The crisp question
then becomes whether the Interim Award complies with the provisions of the
Arbitration Act or is in conflict therewith. The answer thereto is that the Interim
Award is patently in conflict with material provisions of the Arbitration Act.’ The
learned Judge was not aware of two important sources of law dealing with this
issue. First, in terms of the definitions in s 1 of the Act, ‘award includes an
interim award .’ The settlement agreement signed by the appellant and the
respondent to refer the dispute to an independent expert, was endorsed as an
award by the arbitrator, Mr Badenhorst SC. (Emphasis added.)
[20] Second, this Court has endorsed the principle that it is permissible for
an arbitrator to record a settlement agreement concluded by the parties to the
dispute before him or her, as an award in terms of common law. In Bidoli v
Bidoli and Another 3 (Bidoli), three brothers had conducted business together
with their father in separate entities. Disputes arose between the brothers
which were by agreement, referred to arbitration. On the day of
commencement of the arbitration, the parties met and reached a settlement
agreement, which they signed. Three days later, one of the parties requested
the arbitrator to re -open the arbitration, stating that he was dissatisfied with
the settlement agreement . He explained that he signed the settlement
agreement by mistake, but the arbitrator informed him that he intend ed to
make the settlement agreement his award and he was at liberty to raise his
objection at court. When an application was made to the Western Cape
Division of the High Court, Cape Town (the Western Cape high court), for the
arbitral award to be made an order of court, the dissatisfied party opposed the
application and sought an order declaring the award and the settlement
agreement void ab initio, alternatively, that it be declared void and the
agreement void ab initio, alternatively, that it be declared void and the
arbitration hearing be re -opened. After considering the arguments, the
Western Cape high court held:
‘I accordingly agree with the submission of [counsel], that, upon the settlement of
their disputes by the parties, the arbitrator’s appointment was at an end, for there
was nothing left for him to decide in terms of the referral to arbitration. The
publication of any award thereafter, which merely incorporates the settlement
3 Bidoli v Bidoli and Another [2011] ZASCA 82; 2011 (5) SA 247 (SCA).
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concluded by the parties, did not, in my opinion, bring about a valid award which may
be made an order of court in terms of section 31 of the Arbitration Act. Nor can it , in
terms of our common law, be regarded as a valid arbitral award.’4
[21] Bidoli came on appeal in this Court where the decision of the Western
Cape high court was reversed. This Court, following a section of an English
statute on arbitration, accepted the principle that ‘where the parties settle their
dispute in the course of the arbitration it enables the arbitrator to issue an
award recording the terms agreed. An agreed award thus has the status and
effect of any other award on the merits. Accordingly, an agreed award is
enforceable even though the arbitrator has not actually made a decision but
simply recorded the agreed terms.’5
[22] Where the parties to a dispute referred to arbitration reach a settlement
agreement on the main issue in the dispute, that could result in the arbitration
proceedings being redundant, as there would be no further dispute to
adjudicate. This question would be best answered with reference to the
circumstances of each case, primarily on the merits. In this instance the
high court did not deal with the merits . This Court therefore declines to
adjudicate the merits as it is not a court of first instance. An appropriate order
in this regard would be to refer the matter back to the high court for the
adjudication of the merits.
[23] In this case the high court erred in law and fact , in dismissing the
appellant’s claim on a point in limine . The parties agreed in clause 5 of the
interim award that the final report of the independent expert will be binding on
them. The appellant’s cause of action is therefore founded on that report. The
appeal should therefore succeed and the order of the high court should be set
aside. As regards the costs, these should follow the result.
4 Bidoli v Bidoli [2010] ZAWCHC 39 para 28.
4 Bidoli v Bidoli [2010] ZAWCHC 39 para 28.
5 Bidoli v Bidoli and Another [2011] ZASCA 82; 2011 (5) SA 247 (SCA) para 8.
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[24] The following order shall issue:
1 The appeal is upheld with costs, including the costs of the application
for leave to appeal, such costs to include the costs consequent upon
the employment of two counsel.
2 Orders 1 to 4 of the high court are set aside and replaced with an order
in the following terms:
‘The second point in limine raised by the respondent is dismissed with
costs, such costs to include the costs consequent upon the
employment of two counsel.’
3 The matter is remitted to the high court to be determined on the merits.
_____________________
S P MOTHLE
JUDGE OF APPEAL
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APPEARANCES:
For appellant: A. G Sawma SC with D.L Williams
Instructed by: Alan Jacobs & Associates, Johannesburg
Lovius Block Attorneys, Bloemfontein
For respondent: I Jamie SC with L Stansfield
Instructed by: Webber Wentzel Attorneys, Cape Town
Phatshoane Henny Attorneys, Bloemfontein.