(b)
the whole or the greater part of the assets of the company.
(2) No resolution of the company approving any such disposal shall have effect unless it authorizes or ratifies in terms the specific
transaction.’
[13]
Hosmed’s rejoinder denied that s 228 had not been complied with, and relied in the alternative
on estoppel or the Turquand rule. In essence, Hosmed alleged that Thebe had represented that its managing director, Mr Frank Bartlett,
had authority to conclude the amending agreements, and that Hosmed had relied on such representations; and that, further, it had
entered into the amending agreements in good faith and on the assumption that the internal requirements of Thebe had been complied
with – the Turquand defence.
[14]
The parties agreed that the arbitrator should assume that Thebe’s agreement not to claim fees for
ongoing services did constitute a disposal of the greater part of its assets. Thus, when the arbitration commenced, the disputes
to be determined were whether the amendment to the regulations in 2001 precluded Thebe from claiming fees for ongoing services, and
whether the amendments to the parties’ agreement in 2001 were in contravention of s 228 of the Companies Act. This entailed
also a determination of the defences based on estoppel and the Turquand rule. It was agreed that the quantum of Thebe’s claim
would be determined after these issues had been decided.
[15]
The evidence of two witnesses was led for Thebe at the arbitration hearing: Mr J Alderslade, the financial
director of Thebe’s holding company, and Laird, the chief executive officer of Thebe, referred to earlier. A director of Thebe,
Mr P McCulloch, who was involved in the negotiations with Hosmed, did not testify. Hosmed called the evidence of Mr M Brown. The
evidence of Thebe’s witnesses was of limited value since they had not participated in the negotiations leading to any of the
agreements. Indeed, Laird had joined Thebe only in 2003, two years after the broking agreement had been amended by the parties.
[16]
When the arbitration was adjourned for the arbitrator to consider his award, Thebe realized that it had
not led evidence to substantiate its contention that the amending agreements had not been authorized as contemplated in s 228 of
the Companies Act. It was granted leave to recall Laird. Laird testified that he could not find in Thebe’s documents any record
of a resolution of the company’s members authorizing the disposal of a major part of its assets or undertaking. He was cross-examined
by Hosmed’s counsel on the existence of such a document. The evidence adduced, according to Hosmed, was designed to show that
Thebe’s sole shareholder, the Thebe Hosken Group (Pty) Ltd, of which McCulloch was a director, as well as being a director
of Thebe, had agreed to the disposal of Thebe’s right to fees for ongoing services to Hosmed’s members. There was thus,
it was argued before the appeal tribunal, unanimous assent to the disposal and no contravention of s 228. The principle of unanimous
assent is that where all the shareholders of a company agree on a matter that ordinarily requires a resolution of a general meeting
of the company, the need for the formal resolution falls away.
[17]
Much store is placed by Hosmed on Laird’s evidence when he was recalled. Counsel argued before
us that his questioning was directed to the issue of unanimous assent, even though it had not been pleaded. The gist of Laird’s
evidence on recall was that, despite a careful search, he could not find any resolution authorizing the amendments of the broking
agreement and thus no evidence that the disposal was authorized under s 228. He testified that the Thebe Hosken Group was indeed
the only shareholder in Thebe and confirmed that McCulloch had been a member of the boards of both Thebe and the Thebe Hosken Group.
[18]
In support of the contention that there was unanimous assent, and that this was raised as an issue in
the arbitration, Hosmed points to the following passage:
‘Mr Swart [counsel for Hosmed]: . . . I put it to you the shareholder must have been aware of this [the disposal] through Mr McCulloch.
Mr Laird: If Mr McCulloch disclosed it. But as I’ve said to you, I’ve looked through all of the minutes, etcetera, and I haven’t found anything
in there that would say that this is what happened.
Mr Swart: But we’ve already agreed that there was only one shareholder. It would be senseless to have a formal meeting with
yourself. Not so?
Mr Laird: Well, I think something as important as this I think it would have been important for it to have been documented and I found
no documentation whatsoever.
. . . .
Mr Swart: . . . And I put it to you that on a reading of this the only inference to be drawn is that the shareholder, through McCulloch,
was aware of this and consented to it.’
[19]
No objection was made to these questions and submissions and Thebe did not re-examine Laird. Counsel
for Hosmed contends both in his heads of argument and before this court that it was clear that he was placing before the arbitrator
the issue of unanimous assent. He also asserts that he argued the point before the arbitrator, and there was no objection to his
argument. Counsel for Hosmed have no recollection of this aspect of the argument before the arbitrator, and indeed it does not appear
from the written heads of argument submitted to the arbitrator and which form part of the appeal record. The arbitrator did not deal
with the issue of unanimous assent in making his award which was that portion of Thebe’s claim, plus interest, and costs was
payable by Hosmed (the balance having prescribed). The arbitration was postponed sine die to deal with the quantification of the
claim.
[20]
Hosmed appealed against the award to the appeal tribunal constituted in accordance with the arbitration
agreement. The issues on appeal were whether Thebe could, despite the amendment to the regulation in 2000, claim for fees for ongoing
services between 2001 and 2003 when the regulations were again amended; and whether Thebe had complied with s 228 of the Companies
Act. The appeal tribunal found that Thebe was entitled to claim the fees in issue (there was in fact no legal impediment to doing
so, despite the perception about the effect of the 2000 amendment), thus confirming the arbitrator’s award in this respect.
But it also considered that the amendments to the original agreements, which had the effect (assumed for the purpose of the question
of liability) of disposing of its business within the meaning of s 228 of the Companies Act, were valid. It held that there was unanimous
assent to the disposal, and that the amending agreements were thus enforceable. Accordingly Thebe had disposed of its right to claim
fees for ongoing services.
[21]
The application by Thebe for the setting aside of the award is based on the appeal tribunal’s finding
on unanimous assent since, it argued, it had not been pleaded, nor canvassed in evidence. The arbitration appeal tribunal, Thebe
contended, had thus both exceeded its powers and committed a gross irregularity in terms of s 33 of the Arbitration Act , in not
observing the audi alteram partem rule .
[22]
The appeal tribunal accepted Hosmed’s argument that although unanimous assent had not been pleaded
– despite the numerous amendments to the pleadings by both parties, including an amendment made during the course of the appeal
proceedings – the ‘issues were . . . substantially broadened during the hearing before the arbitrator (cf Shill v Milner 1937 AD 101 at 105) to include a defence of unanimous assent.’ It analysed the evidence of Hosmed’s witness, Brown, to
the effect that no payments had been made to Thebe for ongoing services after the amending agreements were concluded, and no claims
had been made. The arbitrator had found that there was no evidence of an agreement, alleged by Hosmed, that this loss of income would
be made up by increased administrative charges levied by Thebe.
[23]
The appeal tribunal adopted a different approach. It said:
‘In terms of s 228 the directors of a company have no power to dispose of the greater part of the assets of a company without the approval
of a general meeting of the company. On a proper interpretation of s 228, it matters not whether the company is getting something
in return for such disposal or not. Even if the company were to receive the market value of the assets disposed of in return for
the disposal, the directors would not have the power to dispose of such assets without the approval of the general meeting of the
company. In our view it is, therefore, irrelevant whether there was a “credible or enforceable contract” in terms of
which the claimant was entitled to be remunerated for the ongoing services it was providing to the respondent. On the assumption
that the claimant [Thebe] disposed of the greater part of its assets . . . [by virtue of the amending agreements] s 228 would in principle be applicable.’
[24]
The appeal tribunal considered that the lack of a formal resolution was no bar to the disposal if there
were unanimous assent, which could be inferred from the circumstances. The appeal tribunal had regard to a number of factors in concluding that it was a probable inference that ‘all the directors’
of the sole shareholder in Thebe, the Thebe Hosken Group, assented to the disposal of the right to claim fees for ongoing services.
These included the fact that prior to the amendments Thebe had claimed fees for ongoing services, and Hosmed had paid, whereas no
claims were made or paid after the amendments; the view of the medical aid industry that such fees were contrary to the amended regulations;
amendments to the original broking agreement had been discussed at a meeting of the board of trustees of Hosmed; and the directors
of Thebe were aware of the new regulations and the problems that they apparently posed to claiming fees for ongoing services. Since
there was only one shareholder in Thebe, the assent of the directors of the holding company would be the assent of the holding company
itself and a formal meeting would be redundant. The disposal was thus with the unanimous assent of the shareholder in the company,
and Thebe’s claim had to be dismissed.
[25]
I shall set out the award in full since, although setting aside the award, the court below substituted
its own order for that of the appeal tribunal.
‘1 The appeal is upheld with costs and the award of the arbitrator is set aside.
2 The following award is substituted therefor:
2.1 The claimant’s first claim is dismissed.
2.2 The claimant is ordered to pay Hosmed’s costs pertaining to this part of the arbitration, which costs are to include the
costs consequent upon the employment of two counsel.
2.3 The arbitration is postponed sine die in respect of the issue of quantification as set out in the separation order.
3 The costs referred to above include the costs of the arbitrator/appeal tribunal, the costs of two counsel, the recording and record,
the venue, witnesses and all ancillary costs. In the absence of agreement between the parties these costs will be taxed on the High
Court scale by the Taxing Master of the High Court, Johannesburg.’
[26]
The Pretoria High Court, as I have said, set aside the appeal tribunal’s award in terms of s 33
of the Arbitration Act 42 of 1965, apparently on the basis that the tribunal exceeded its powers. I shall revert to the order made
by the court.
[27]
Section 33 of the Arbitration Act provides for the setting aside of an arbitration award (and this applies
also to an appeal tribunal’s award) –
(1)
Where-
(a)
any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or
(b)
an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded his powers;
or
(c)
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.’
[28]
Thebe argues that the appeal tribunal both exceeded its powers and was guilty of a gross irregularity.
The same conduct, however, was relied on as giving rise to both grounds for the setting aside of the award. The gravamen of the complaint
is that the issues before the arbitrator, and thus before the appeal tribunal, were defined by the pleadings. The arbitration agreement
said so expressly. The agreement also made provision for amendments, and both parties amended and added to their pleadings during
the course of the proceedings. Hosmed even introduced an amendment at the stage of appeal. The arbitration appeal tribunal could
not, it was argued, go beyond the pleadings and decide an issue not pleaded. Unlike a court, which has the inherent jurisdiction
to decide a matter even where it has not been pleaded, an arbitrator has no such power. It was common cause that the issue of unanimous
assent was not pleaded at any stage.
[29]
Hosmed, on the other hand, argues that the arbitration agreement expressly confers on the arbitrator,
and therefore also on the appeal tribunal, the powers of a high court and of the Supreme Court of Appeal, respectively. Thebe’s
response is that these are procedural powers and do not confer jurisdiction to determine matters on which the parties have not agreed.
[30]
In my view it is clear that the only source of an arbitrator’s power is the arbitration agreement
between the parties and an arbitrator cannot stray beyond their submission where the parties have expressly defined and limited the
issues, as the parties have done in this case to the matters pleaded. Thus the arbitrator, and therefore also the appeal tribunal, had no jurisdiction to decide a matter not pleaded. Hosmed’s rejoinder put in issue Thebe’s allegation that there had been compliance with s 228. Had Hosmed intended to rely on the principle of
unanimous assent it would have had to plead it specifically because it amounts to a classic confession and avoidance. There is a
fundamental difference between a denial (where allegations of the other party are put in issue) and a confession and avoidance where
an allegation is accepted, but the other party makes an allegation which neutralises its effect – which is what the raising
of unanimous assent would seek to achieve. It is of course possible for parties in an arbitration to amend the terms of the reference by agreement, even possibly by one concluded
tacitly, or by conduct, but no such agreement that the pleadings were not the only basis of the submission can be found in the record
in this case, and Thebe strenuously denied any agreement to depart from the pleadings.
[31]
The appeal tribunal held, however, that it was entitled to go beyond the pleadings where the issue had
been traversed in evidence. It relied, as I have said, on Shill v Milner where De Villiers JA said:
‘The importance of pleadings should not be unduly magnified. “The object of pleading is to define the issues; and parties will
be kept strictly to their pleas where any departure would cause prejudice or would prevent full inquiry. But within those limits the Court has wide discretion. For pleadings are made for the Court, not the Court for pleadings. Where a party has
had every facility to place all the facts before the trial Court and the investigation into all the circumstances has been as thorough
and as patient as in this instance, there is no justification for interference by an appellate tribunal merely because the pleading
of the opponent has not been as explicit as it might have been.” Robinson v Randfontein Estates GM Co Ltd (1925 AD 198).’
Relying on these dicta in Shill v Milner and in Robinson v Randfontein Estates the appeal tribunal held, as mentiond in para 22, that the issues were ‘substantially broadened during the hearing before the
arbitrator . . . to include a defence of unanimous assent’.
[32]
I have already said that the appeal tribunal was not entitled to take this approach: its powers were
conferred by the arbitration agreement and it did not have the power to go beyond that. But even if, for the sake of argument, it
were accepted that the appeal tribunal did have jurisdiction, it can hardly be contended that the question whether there was unanimous
assent was properly canvassed before the arbitrator. Counsel for Hosmed said that that was the issue on his mind when he cross-examined
Laird on recall. But he conceded that he did not communicate this expressly to the witness or to Thebe’s counsel. I have set
out the relevant evidence above. It is far from clear that what counsel was attempting to elicit from Laird was whether the sole
shareholder in Thebe had assented to the disposal of the right to claim fees for ongoing services. At its highest, Laird conceded
that it would have been pointless for McCulloch to call a meeting with himself to pass a resolution. But Laird could not testify
on what had in fact happened since he had not been part of Thebe when the amending agreements were concluded.
[33]
Hosmed contends that Thebe did not object to the questions asked of Laird. It is not clear why they should
have done so: it was not obvious that a new issue was being raised, and even if counsel for Thebe had realized what was on Hosmed’s
counsel’s mind, he was entitled to remain silent knowing that the issue had not been pleaded. But there is no point in examining
this issue further. On any basis, the question whether there had been unanimous assent, obviating the need for a meeting and a special
resolution, was not really, let alone fully, canvassed in the evidence. It was first raised in the oral argument before the arbitrator,
and did not feature even in counsel’s heads of argument which form part of the record.
[34]
The facts on which the Shill v Milner principle can be applied, even if it had been open to the appeal tribunal to rely on it, were not traversed in evidence. There was
thus no basis for the appeal tribunal to find that there was unanimous assent to the disposal of the right to claim fees for ongoing
services.
[35]
In the circumstances the appeal tribunal exceeded its powers: it went beyond the terms of the arbitration
agreement. This is a clear case where the arbitration appeal tribunal exercised a power that it did not have. This court recently
referred with approval to the decision of the House of Lords in Lesotho Highlands Development Authority v Impreglio SpA where Lord Steyn distinguished between cases where a tribunal mistakenly exercises a power that it does have, and those where a tribunal
exercises a power that it does not have. In the latter type of case the tribunal exceeds its power, and, under our Arbitration Act,
that warrants the setting aside of the order. This is the position stated earlier in Dickenson & Brown v Fisher’s Executors applied by the court in Telcordia. The judgment of Harms JA in Telcordia embodies a comprehensive account of the bases on which an arbitrator’s award may be set aside and there is no need to repeat
what is said in that case.
[36]
In view of the finding that I make that the appeal tribunal exceeded its powers, it is not necessary
to consider whether its decision on unanimous assent constituted a gross irregularity.
[37]
The appeal against the decision of the court below to set aside the award in terms of s 33(1)(b) must
accordingly be dismissed. It remains to determine what consequences follow. Hosmed has argued that the matter should be remitted
to the appeal tribunal so that it can apply to reopen its case and amend its pleadings so as to include the issue of unanimous assent.
Thebe’s response is, naturally, that it had had that opportunity when the appeal tribunal hearing commenced, and declined to
take it. Seriti J in the court below refused to remit the matter on the basis that Hosmed should have sought to reopen its case when
the appeal tribunal was convened. The learned judge considered that he should substitute the court’s order for that of the
appeal tribunal.
[38]
The order reads:
‘(1) The award or order of the arbitration appeal tribunal is set aside and is substituted by the following:
“(a) The appeal is dismissed with costs and the award of the arbitrator [Mr] Van Schalkwyk is upheld.
(b) Hosmed is ordered to pay the claimant’s costs pertaining to this part of the arbitration, which costs are to include the
costs consequent upon the employment of two counsel in the appeal proceedings.
(c)
The costs referred to above include the costs of the arbitrator, appeal tribunal, the costs of two counsel, the recording and record,
the venue, witnesses and all ancillary costs. In the absence of agreement between the parties these costs will be taxed on the High
Court scale by the Taxing Master of the High Court, Johannesburg.
(d)
The arbitration is to continue before the arbitrator [Mr] Van Schalkwyk for arbitration of the issue of quantification as set out
in the separation order agreed to between the parties in December 2005.”
(2) The fourth respondent [Hosmed] is ordered to pay the costs of the applicant on a party and party scale, which costs will include
costs consequent upon the employment of two counsel.’
[39]
Hosmed contends that it was not open to the court to substitute its own order for that of the appeal
tribunal. This court, it argues, should remit the dispute to an appeal tribunal to consider the matter having regard to this court’s
finding, and to give Hosmed the opportunity to apply to reopen its case and to amend its pleadings.
[40]
Counsel for Thebe, on the other hand, argues that if the court has the power to remit a matter to an
arbitrator it must also have the power to substitute its own order. But even if that is not the case, Thebe argues, the order of
the arbitrator should stand, and that takes care of the costs and other orders made by the court below. There is no purpose served
in remitting the matter to the appeal tribunal, it argues, since it could make no award other than to refuse or allow Hosmed to reopen
its case and amend its pleadings. If an appeal tribunal refused Hosmed’s application, that in turn would require remittal by
the appeal tribunal to the arbitrator to deal with the quantification of Thebe’s claim. If, on the other hand, Hosmed can show
that there had been unanimous assent, then the arbitrator will have to determine whether the amending agreements did have the effect
of disposing of Thebe’s assets as contemplated in s 228 of the Companies Act. Either way, Thebe contends, the arbitrator will
be required to consider the dispute again: it should thus be remitted directly to the arbitrator if the appeal is not simply dismissed.
[41]
The difficulty with Thebe’s approach is that it is the award of the appeal tribunal, and not the
arbitrator, that is to be set aside. What power does this court have to remit the matter directly to the arbitrator? If such a course
were open to us it would no doubt obviate the time and expense entailed in referring the matter back to the appeal tribunal, when
it is likely that it would have still to go back to the arbitrator irrespective of the appeal tribunal’s conclusion. It is
important to note, however, that the award of the appeal tribunal is not a foregone conclusion.
[42]
It is not apparent that the court below was referred to s 33(4) of the Arbitration Act or that either
party requested submission to a new appeal tribunal. In any event, in my view it is not possible to refer the matter directly to
the arbitrator. It is the appeal tribunal’s award that has been set aside, and s 33(4) of the Arbitration Act requires that
‘If the award is set aside the dispute shall, at the request of either party, be submitted to a new arbitration tribunal constituted in the manner directed by the court’ (my emphasis).The section, which is peremptory, must refer also to an appeal tribunal’s award.
[43]
Where neither party requests that the matter be referred back to the arbitrator, or appeal tribunal, then an award made in excess
of its powers should simply be set aside by the court in terms of s 33 of the Arbitration Act. And, presumably, if both parties wished
to refer the matter back to the same arbitrator or appeal tribunal, the court would be entitled to make such an order. Hosmed submitted that it had no difficulty with a reference back to the same appeal tribunal. But Thebe asserted that it had lost
confidence in the appeal tribunal. Irrespective of Hosmed’s views, however, the section is clear: if either party requests
it the dispute must be referred to a new tribunal. The court is not, in my view, given a discretion in this regard. Equally, because of the peremptory wording of s 33(4), a court does not have the discretion to substitute its own order for that
of the appeal tribunal.
[44
.RTF of original document