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[2014] ZAWCHC 93
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Marble Classic Exclusive Warehouse for Natural Stones Cape (Pty) Ltd and Another v A.R Sholto-Douglas SC and Another (3521/14) [2014] ZAWCHC 93 (19 June 2014)
IN THE HIGH COURT OF SOUTH AFRICA
WESTERN CAPE DIVISION, CAPE TOWN
CASE NO: 3521/14
REPORTABLE
DATE: 19 JUNE 2014
In the matter between:
MARBLE CLASSIC EXCLUSIVE WAREHOUSE FOR
NATURAL STONES CAPE (PTY)
LTD
............................................................
First
Applicant
FRANCO
D’AGNOLO
..................................................................................
Second
Applicant
And
A.R. SHOLTO-DOUGLAS
SC
.....................................................................
First
Respondent
LUDEL PROPERTIES (PTY)
LTD
..........................................................
Second
Respondent
JUDGMENT: 19 JUNE 2014
GAMBLE, J:
INTRODUCTION
[1] On 15 August 2007 the First
Applicant (duly represented by the Second Applicant and hereinafter
otherwise collectively referred
to as “
the Applicant
”)
concluded an agreement of lease with the Second Respondent
(conveniently hereinafter referred to as “
the Respondent
”).
[2] The lease related to the rental of
certain commercial premises in Cape Town and was
ex facie
the
document to be for a period of five years. The parties agreed
in clause 4.5 thereof that the lease was renewable for a
further five
years:
“
5….The Tenant shall be
entitled to renew this lease for the Rental Period… provided
that…
5.4
the Tenant gives written notice to the Landlord no later than 6
(six) months
prior to the expiry of the Lease Period exercising the
right to renew this lease for the Renewal Period.”
[3] On 13
August 2007 the Second Applicant concluded a written deed of
suretyship in favour of the Respondent
in respect of the First
Applicant’s obligations to it under the lease.
[4]
Notwithstanding the terms of clause 5.4, which suggested a
contemplated renewal of the lease at some
distant date in the future,
the option to renew was in fact exercised by the Applicant on 8
August 2007. The explanation
for the apparent anomalies
relating to these dates lies in the fact that, while the parties were
negotiating the terms of the lease,
it became apparent to them that
if a lease for an initial period of ten years was concluded, the
stamp duty thereon would be significantly
more than in respect of a
stamp duty payable for two consecutive periods of five years.
[5] The
Respondent’s representative, Mr. Luck, took advice from an
attorney and was informed that
the liability for stamp duties could
be significantly minimised if the parties recorded their agreement as
they did: an initial
five year lease renewable for another five
years with the notice of renewal being given immediately.
[6] And so, the
parties agreed to arrange their commercial affairs on that basis and
the Applicant took
occupation of the premises early in 2008.
Things appear to have run fairly smoothly until 2012 when the
Applicant fell
into arrears. Proceedings were initiated in the
Regional Court, Cape Town for the recovery of rental and ancillary
relief,
including an automatic rent interdict. That
litigation was settled on 30 August 2013 when the Regional Magistrate
made
an order recording the party’s agreement,
inter alia
,
that their dispute be referred to arbitration within ten days.
[7] On 12
September 2013 the parties concluded a pre-arbitration agreement at
the chambers of the First
Respondent, senior counsel practicing at
the Cape Bar, to whom I shall refer hereinafter as “
the
Arbitrator
”. The arbitration proceedings were
thereafter conducted during November and December 2013.
[8] Mr. Luck
gave evidence before the Arbitrator and explained the substance of
that which is set out above
relating to the intended saving of stamp
duty. After the conclusion of his evidence, the Applicant
amended its statement
of claim and included an allegation that “
Luck
drafted [the lease] for the purpose to evade, defeat or frustrate the
requirements of the Stamp Duties Act
.” Although the
parties had up to then been happy to do business with each other
under the lease for more than five
years, the Applicant, expediently
it was suggested by the Respondent, adopted the stance that the lease
and the written renewal
thereof were void pursuant to the provisions
of s14 of the Stamp Duties Act, 77 of 1968. That section
provides as follows:
“
Any contract, agreement or
undertaking made for the purpose of evading, defeating or frustrating
the requirements of this Act as
to the stamping of instruments, or
with a view to precluding objection or inquiry relative to the due
stamping of any instrument,
shall be void: Provided that
nothing in this section contained shall prohibit any agreement
between the parties as to the
distribution between themselves of
liability to pay the amount which is payable as duty.”
[9] The
Arbitrator delivered his award on 14 February 2014. In
paragraph 1 thereof he noted the following:
“
1.
As this is a confidential arbitration and this award is
addressed
to the parties who were involved in the hearing of this
matter, I shall not set out in any detail the factual
background to the dispute I am called upon to determine.”
[10] After only
a brief summary of the evidence, the Arbitrator dealt with two issues
which he considered
necessary for determination:
“
7.1
whether or not the purported renewal of the lease agreement was
effective, so that the claimant is
bound to the terms of the lease
agreement for the renewal period, being a period of five years
commencing immediately after
the expiration
of the lease period on 28 February 2013; and
7.2
whether or not, as alleged by the claimant, the lease agreement is
void by reason of the fact
that the evidence revealed that its terms
were agreed in order to minimise liability for stamp duty payable in
terms of the Stamp
Duties Act No. 77 of 1968.”
[11] In
relation to the stamp duty point, the Arbitrator adopted the argument
advanced before him by the
Respondent’s counsel,
Mr.
Patrick,
and upheld the lease:
“
16. In
my view
Mr. Patrick’s
argument has merit.
Where parties to a transaction agree to do something for the purpose
of evading, defeating or frustrating
the requirements of the Stamp
Duties Act, they are hardly likely to record that agreement in the
instrument itself. It is
not the instrument that is the subject
of s14: it is the agreement to evade, defeat or frustrate the
requirements of the
Act. Section 12 was, during the currency of
the Stamp Duties Act, frequently invoked by litigants or the courts,
requiring
the stamping of instruments and the payment of penalties
and interest, all of which inured to the benefit of the fiscus.
17. In
my view, therefore, notwithstanding the evidence that the lease
agreement and the option were
deliberately drafted to avoid the
payment of stamp duty, that does not render the lease agreement
void.”
[12] On 28
February 2014 the Applicant launched an application, as a matter of
urgency, to set aside the
Arbitrator’s award and to substitute
it with an order declaring that the lease, alternatively the renewal
thereof, was void.
In the alternative, the Applicant sought to
set aside the award under s 33(1) of the Arbitration Act, 42 of 1965
(“
the Act
”).
[13] The
application was opposed by the respondent which filed a
counter-application seeking,
inter alia
, to have the award
made an order of Court in terms of s31 of the Act.
[14] In the
founding affidavit the alleged irregularity on the part of the
Arbitrator was formulated thus
by the Second Applicant:
“
13.1 The
Arbitrator committed, with respect, a gross irregularity in that he
did not apply the provisions of the Stamp
Duties Act to the evidence
which was given. Having regard to the evidence by Luck, the
lease agreement was void, alternatively
the notice, annexure “B”,
was void. On Luck’s own evidence, these documents were
created and made for the
purpose of evading and defeating stamp
duty. In failing to apply the law as set out in the Stamp
Duties Act, the arbitrator
committed a gross irregularity which the
above Honourable Court should, with respect, correct.
13.2 Applying the
provisions of the Stamp Duties Act to the evidence, could, with
respect, only have resulted
in one finding, and that is that the
lease agreement
alternatively
the notice to renew was void.
There is, with respect, no other reasonable application of the
evidence to provisions (
sic
) of the Stamp Duties Act.
13.3 It is further
a criminal offence to make a contract, an agreement or an undertaking
to avoid stamp duty.
If the parties are to comply with the lease or
the notice as the arbitrator found, it means that the parties have to
give effect
to a crime that was committed. Such a finding is
with respect grossly irregular.
13.4 I am advised
that in terms of the common law, the above Honourable Court retains
the right to review and
set aside a gross irregularity committed by
an arbitrator and that in terms of the provisions of the
Arbitration
Act itself
, the Court has jurisdiction to set aside an award made by
an arbitrator, committing a gross irregularity.
13.5 I respectfully
submit, that having regard to the evidence and the provisions of the
Stamp Duties Act, that
the arbitrator committed a gross irregularity
and that the Court should review and set the award aside and replace
the award with
a finding that the lease agreement, annexure “A”
alternatively
, the notice of renewal annexure “B”.
(
sic
)”
[15] In his
written heads of argument counsel for the Applicant,
Mr. Bruwer
,
submitted that the award fell to be set aside by virtue of the fact
that the Arbitrator “
committed a gross misdirection and
irregularity by virtue of the fact that the arbitrator failed to
apply the South African law
as set out in the Stamp Duties Act
.”
[16] While
there could be some elements of equivocality in these stances adopted
by the Applicant, they
strongly suggest that the Arbitrator committed
a mistake of law. However,
Mr. Bruwer
removed any shadow
of doubt in argument in open Court when he submitted that his client
did not rely on an error of law on the
part of the Arbitrator.
The failure on the part of the Arbitrator, said counsel, was to
properly consider the facts
before him in relation to the provisions
of s14 of the Stamp Duties Act.
[17] Counsel
for the Respondent,
Mr. Patrick
, was quick to point out that
the Applicant’s case had undergone a complete metamorphasis
from the founding papers through
the heads of argument to oral
argument. The case as finally presented, he said, appeared then
to rely on s33(1)(b) of the
Act which is the only subsection in which
reference is made to “
gross irregularity
” and
which is to the following effect:
“
33.
Setting aside of award
(1) Where
(a) …
(b) an arbitration tribunal has
committed any gross irregularity in the conduct of the arbitration
proceedings or has exceeded
its powers …
(c)…
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.”
[18] It is
important to distinguish reviews under the
Promotion of
Administrative Justice Act, 3 of 2000
in which a review based on a
mistake of law is permissible under
sec 6(2)(d)
, and the review of
arbitral awards. In the latter instance, the Courts have
repeatedly held that the fact that an arbitrator
commits a mistake of
law and that the award is therefore wrong does not disclose a basis
for review under the Act.
[1]
[19]
No
doubt realising the futility of presenting an argument in support
of an error of law as a ground of arbitral review in light of
these
cases,
Mr. Bruwer
sought refuge in a review based on an error
of fact. But that does not assist the Applicant either.
The law is clear
on that score too, as the following passages in the
judgment of Brand J in
Kolber
[2]
demonstrate:
“
[39] In
order to make an argument in law that gross error or gross
carelessness constitutes ‘misconduct’
within the meaning
of s33(1)(a) applicants, in their heads of argument, relied on the
following passage from the judgment of Solomon
JA in
Dickenson
and Brown v Fisher’s Executors
1915 AD 166
at 176:
“
It may be also that an
arbitrator has been guilty of the grossest carelessness and that in
consequence he had come to a wrong conclusion
on a question of fact
or law and in such a case I am not prepared to say that a Court might
not properly find that there had been
misconduct on his part.”
[40] This passage,
applicants submitted, should be taken to mean that where gross
carelessness on the part of an arbitrator
is demonstrated, absent any
evidence of
male fides
or partiality, that
suffices to show misconduct.
[41] …The
thrust of the judgment [of Solomon JA] as a whole is a confirmation
of the generally accepted
meaning given to the term misconduct: it
requires ‘some wrongful or improper conduct’; it
seems ‘impossible
to hold that a
bona fide
mistake
either of law or fact made by an arbitrator can be characterised as
misconduct’; ‘where an arbitrator has given
fair
consideration to the matter…it would be impossible to hold
that he had been guilty of misconduct merely because he
had made a
bona fide
mistake either of law or fact or of fact’ (see
at pp175-6 of the report.)
[42] …
[43] …The
judgment of Solomon JA has subsequently been interpreted by a number
of Courts to mean
that even a gross mistake of fact or law does not
constitute ‘misconduct’ as contemplated by s33(1)(a) and
that a Court
cannot upset an arbitrator’s award on the basis of
misconduct unless it finds him guilty of ‘misconduct’ in
the
sense of moral turpitude or
mala fides
. Included in
this number is a decision by the Supreme Court of Appeal in
Amalgamated Clothing and Textile Workers Union v Veldspun (Pty)
Ltd
[1993] ZASCA 158
;
1994 (1) SA 162
(A) at 169C-E (see also the decision by a
Full Bench of this Division in
Bester v Easigas (Pty) Ltd and
Another
1993 (1) SA 30
(C) at 37H-I).”
Kolber
was cited with approval in
Total Support
which also approved of the approach by Brand J
in
Bester v Easigas
to which reference is made in para 43 of
Kolber.
[20] In
Kolber
the Court considered the reviewability of the arbitration award
before it under sec 33(1)(a) since the applicant in that case had
alleged that the relevant “
misconduct
” on the part
of the Arbitrator resorted under that section. The
finding of Brand J was that neither mistakes
of fact nor law
constituted “
misconduct”
under that section of the
Act.
[21] In
Total
Support
the applicant for review relied on both secs 33(1)(a) for
a review based on “
misconduct
”, and sec 33(1)(b)
for a review based on “
gross irregularity”
.
Smalberger ADP considered the impugned conduct of the arbitrator in
relation to sec 33(1)(a) and came to the following
conclusion at
677D-F
“
[36]
Misconduct in the required sense will in any event not likely or
readily be inferred on the part of an arbitrator
who is
a professional man of considerable experience in his
field with a reputation to uphold,
solely on the strength of errors
made in his judgment, especially where, as in the present instance,
such errors could never
be described as
gross. In my view, it is, as a matter of inference, more
likely that
any errors made by the second respondent were
bona fide
mistakes made by him in the course of
a difficult adjudication. In the result there is no room for a
finding of
misconduct on his part.
It follows that the first round of review cannot succeed.”
[22] The learned Judge of Appeal then
went on to consider the ground of review raised under sec 33(1)(b) in
the context where it
was alleged that the award had been prepared by
the arbitrator’s assistant without material input from the
arbitrator. This
did not involve any allegation of error of law or
fact on the part of the arbitrator, but the alleged activity was
nevertheless
assailed as an irregularity. The finding of the
Court on this score was as follows at 680F:
“
[47] In the
result the appellants have failed to establish that the
second appellant
committed any irregularity, let alone a
gross irregularity, in the
conduct of the arbitration
proceedings. Nor, in utilising Milo’s services to the
extent that he did, could there have been any misconduct
on his part. The requirements of
s33(1)(a) and (b) of the
Act have not been satisfied. It follows that the second
ground of review cannot succeed either.”
[23] In
Telcordia
Harms JA was required to consider a common law
review based on alleged material errors of law on the part of the
arbitrator, as
well as “
gross irregularity
” under
sec 33(1)(b). The learned Judge of Appeal found on the basis
of,
inter alia,
Dickenson & Brown
and
Total
Support
that in consenting to arbitration under the Act, a party
was not entitled to rely on the common law powers of Courts to review
errors of law.
[24] In
considering the extent of a “
gross irregularity
”
under sec 33(1)(b), Harms JA observed, firstly, that it was necessary
to take care in not confusing an arbitrator’s
reasoning with
the conduct of the proceedings themselves. In such
circumstances said the learned Judge of Appeal, one had
to consider
what the nature of the enquiry was and what the arbitrator’s
duties and powers were. He found as follows
at 301H
et seq
:
“
[83] In
short, the arbitrator had to: (i) interpret
the agreement;
(ii) by applying South African
law; (iii) in the light of its
terms; and (iv) all the admissible evidence.
[84] In
addition, the arbitrator had, according to the terms of
reference, the power (i) not to decide an issue which he
deemed unnecessary or inappropriate; (ii)
to decide any
further issues of fact or law, which he deemed necessary
or appropriate; (iii)
to decide the issues in any manner or
order he deemed appropriate;
and (iv) to decide any issue
by way of a partial, interim or final award, as he deemed
appropriate.
[85]
The fact that the arbitrator may have either
misinterpreted the agreement, failed to apply South African
law correctly, or had regard to inadmissible evidence does
not mean that he misconceived
the nature of the enquiry
or his duties in connection therewith. It only means that he
erred in the performance of his duties. An arbitrator ‘has
the right to
be wrong’
on the merits of the case, and it is a perversion of
language and logic to label mistakes of this
kind as a misconception of the
nature of the enquiry
–
they may be misconceptions about meaning, law or the
admissibility of evidence but that is
a far cry from saying
that they constitute a misconception of
the nature of the
enquiry. To adapt the quoted words of Hoexter
JA
[
Administrator, South West Africa v Jooste Lithium Myne
(Edms) Bpk
1955 (1) SA 557
(A)]: it cannot be said that
the wrong
interpretation of the Integrated
Agreement
prevented the arbitrator from fulfilling his agreed function
or from
considering the matter left to him for decision. On
the contrary, in interpreting the Integrated Agreement the
arbitrator was actually fulfilling the function assigned to him
by the parties, and it follows that the wrong interpretation
of the Integrated Agreement could not afford any ground for
review by a court.
[86]
Likewise, it is a fallacy to label a wrong interpretation of a
contract, a wrong perception or application
of South African law, or
an incorrect reliance on inadmissible evidence by the arbitrator as a
transgression of the limits of his
power. The power given to
the arbitrator was to interpret the agreement, rightly or wrongly; to
determine the applicable
law, rightly or wrongly; and to determine
what evidence was admissible, rightly or wrongly. Errors of the
kind mentioned
have nothing to do with him exceeding his powers:
they are errors committed within the scope of his mandate. To
illustrate,
an arbitrator in a ‘normal’ local arbitration
has to apply South African law but if he errs in his understanding or
application of local law the parties have to live with it. If
such an error amounted to a transgression of his powers it
would mean
that all errors of law are reviewable, which is absurd.”
[25] As the
authorities I have referred to demonstrate, the provisions of
s33(1)(b) of the Act require
an applicant for review to establish a
gross irregularity in the proceedings themselves. This requires
the reviewable error
to be established in the context of procedural
misconduct blighted by
mala fides
or moral turpitude. It
does not permit an applicant, as here, to rely on either an error of
fact or law. The Applicant
has failed to discharge the onus in
that regard and the application for review of the award must
accordingly fail.
[26] Turning to
the counter application,
Mr. Bruwer
referred the Court to the
second decision in this Court in
Peninsula Eye Clinic
[3]
in which Binns-Ward J outlined the approach to applications in terms
of s31 of the Act:
”
[9]
A party to an arbitration which makes application in terms of s31(1)
for an award in its favour
by the arbitrator to be made an order of
court, ‘accepts an onus to prove that [it] is in possession of
an award that can
properly form the subject of an order of court’
(
Vidavski v Body Corporate of Sunhill Villas
2005 (5) SA 200
(SCA) in para 17). Thus if it were to be
apparent
ex facie
the award, or the reasons
given for it, that it could not properly form the subject of an order
of court, the application would
be refused. A respondent in an
application in terms of the sub-section is entitled to oppose the
application on the ground
that the award is not amenable to properly
being made an order of court; it is not obliged to be pro-active and
take steps, in
terms of
s33
of the
Arbitration Act, to
have the award
set aside.
[10] …
[11] In
considering an application in terms of
s31(1)
of the
Arbitration Act
a
court will not concern itself with possible errors of fact or law
by the arbitrator in making the award, but only with the propriety
of
lending the award the force of an order of the court. This
approach reflects the policy of the courts, not only in this
country,
but also internationally, to strike the balance between party
autonomy and judicial control (or curial intervention) in
a way that
attaches considerable weight to party autonomy…”
[27]
Whatever
the merits or demerits of the review under
sec 33(1)
may be,
said
Mr. Bruwer
, this Court should be loathe to grant its
imprimatur
under
sec 31(1)
to an award that effectively
endorsed the commission of a crime under s14 of the Stamp Duty Act.
[28] A similar
argument was advanced in
Peninsula Eye Clinic
[4]
where it was contended that the transaction which underpinned the
subject of the arbitration award fell foul of sec 38 of the Companies
Act, 61 of 1973
[5]
.
After a detailed examination of the facts before him, Binns-Ward J
found that the impugned transaction did not give rise
to a
contravention of the said sec 38 and that nothing therefore stood in
the way of the Court granting relief under sec 31 of
the Act.
[29]
Mr.
Patrick
argued in reply, firstly, that it was only a criminal
court that was permitted to enquire into and assess whether sec 26(c)
(read
with s14) of the Stamp Duty Act had been contravened.
That had not occurred
in casu
and so there was nothing which
stood in the way of this Court granting the order sought.
Secondly, said
Mr. Patrick
, the provisions of sec 14 were
essentially revenue provisions and there was a long line of cases to
the effect that contracts which
contravened such statutes were not
automatically null and void.
[6]
On this basis, it was argued that the Court was not
precluded from making an appropriate order under sec 33 of the
Act.
[30] In my
view, the second argument does not find application here. The
section in question has
as its express object, a declaration of
invalidity of a contract which seeks to achieve the objects set out
in that section.
[31] As to the
first argument, I am guided by the approach of Brand J in
Kolbe
r.
In that matter the court found that once the award was not reviewable
it followed, perhaps as day does night, that
the court should grant
its
imprimatur
under sec 31. For, otherwise, the
consequences would be to create a state of deadlock between the
parties, effectively rendering
the award unenforceable.
[32] In
addition, I would add that to pronounce on the validity or not of the
scheme to avoid payment of
stamp duty, this Court would be required
to enter into an assessment of the merits of the dispute between the
parties, thereby
turning the review into an appeal. In my view
that is not permissible in proceedings such as these.
[33] Finally,
as
Mr. Patrick
pointed out, perhaps the most trenchant example
that this case is in truth no more than an appeal dressed up as a
review, lies
in the relief sought in prayer 3 of the notice of motion
in which the correct interpretation of the evidence is sought by way
of
declaratory relief.
ORDER OF COURT
[34] In the
circumstances the following order is made:
A.
The application to review the award of the First Respondent in the
arbitration proceedings
between the First and Second Applicants and
the Second Respondent dated 14 February 2014 is dismissed.
B.
The award of the First Respondent in the arbitration proceedings
between the First
and Second Applicants and the Second Respondent
dated 14 February 2014 is made an order of Court.
C.
The First and Second Applicants are to bear the Second Respondent’s
costs of
suit in both the review application and the counter
application jointly and severally, the one paying the other to be
absolved.
GAMBLE, J
[1]
Kolber and Another v Sourcecom Solutions (Pty)
Ltd and Others
2001 (2) SA 1097
(C);
Total Support Management (Pty) Ltd and
Another v Diversified Health Systems (SA) (Pty) Ltd and Another
[2002] ZASCA 14
;
2002 (4) SA 661
(SCA);
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007
(3) SA 266
(SCA);
Road Accident Fund v
Cloete N.O. and Others
2010 (6) SA 120
(SCA) and
Peninsula Eye Clinic (Pty)
Ltd v Newlands Surgical Clinic and Others
2014 (1) SA 381
(WCC).
[2]
At 1107B-1108B
[3]
2014 (1) SA 381
(WCC) at 386E; 387 (C)
[4]
A
t 384G
[5]
The section in question prohibited a company from
giving financial assistance to any purchaser of its shares.
[6]
See for example
McLoughlin,
N.O. v Turner
1921 AD 537
;
Standard
Bank v Estate Van Rhyn
1925 AD 266.