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[2017] ZAECGHC 48
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KH Construction CC v Jenkins and Another (3887/2016) [2017] ZAECGHC 48 (25 April 2017)
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IN THE HIGH COURT OF SOUTH AFRICA
EASTERN CAPE DIVISION, GRAHAMSTOWN
CASE NO. 3887/2016
In the matter between:
KH CONSTRUCTION CC Applicant
and
DENNIS JENKINS NOMINE OFFICIO First Respondent
CONRAD WINTERBACH Second Respondent
JUDGMENT
Bloem J.
[1] This is an application for an order that an arbitration award made by the first respondent be set aside; that the arbitration between the applicant and the second respondent be submitted to a new arbitration tribunal; that the second respondent pay the costs of the application and the arbitration. The application is opposed by the second respondent. At the commencement of the hearing I granted the applicant’s application for the amendment of its notice of motion.
[2] The applicant is KH Construction CC, a close corporation with its principal place of business and registered address at Port Alfred. The applicant does mainly construction in the construction industry in Port Alfred. The first respondent was appointed as an arbitrator by Master Builders Association to arbitrate the dispute between the applicant and the second respondent. The second respondent is a retired businessman who resides in Port Alfred.
[3] During 2012 the second respondent requested the applicant to quote for the construction of new residential house at Port Alfred. Having provided the second respondent with a quotation, the applicant and the second respondent signed an agreement prepared by the Joint Building Contracts Committee Incorporated in terms whereof the applicant undertook to construct a residential house for the second respondent in exchange for payment of the tender amount of R2 946 719.00, VAT inclusive. Clause 40 of the agreement provides for the settlement of disputes either through adjudication or arbitration. Except for the standard clauses of that agreement two further clauses were inserted. The first one gave the second respondent the right to nominate any sub-contractor to do work on the house to be constructed other than ground works, concrete form work and reinforcement and brickwork. The second clause made a letter dated 20 November 2012 part of the agreement information. In terms of the agreement the second respondent was also the principal agent. The applicant alleged that the second respondent did not act in terms of the agreement because he did not issue contract instructions and certificates, including inter alia a certificate of practical completion and a certificate of final completion.
[4] The applicant alleged that between January 2013 and December 2013 it attended to the construction of the house during which period it submitted progress claims which the second respondent paid. The applicant submitted a practical completion progress claim on 5 December 2013 in the amount of R614 634.00 in respect of works completed up to that date. The second respondent denied that the applicant completed the works. Towards the end of February 2014 it made payment to the applicant in the amount of R300 000.00 “in consideration of a solemn undertaking given by [the applicant’s managing member, Richard Heny], to return to the site and to complete the works”. On 16 November 2014 the applicant delivered a final completion progress claim in the amount of R252 678.00. The applicant’s case is that as at 16 November 2014 the amount of R567 312.00 was due and payable to it by the second respondent. The amount of R567 312.00 consists of the balance outstanding on the practical completion progress claim and the entire amount of the final completion progress claim. Because the second respondent did not make payment of the outstanding amount the applicant issued summons against him for the recovery thereof. The action was however withdrawn.
[5] The applicant then instituted arbitration proceedings. The first respondent was appointed as the arbitrator. The applicant served its statement of claim, prepared by its attorney, on the second respondent on 2 September 2015 and on the arbitrator on 3 September 2015. The second respondent delivered his statement of defence and counterclaim, prepared by himself, on 22 September 2015. The applicant’s claim was for payment of the sum of R567 312.00, interest thereon and costs. The statement of claim and counterclaim do not exhibit the clarity that one would have expected of pleadings. Those documents made it difficult to identify the issues between the parties. What can be gleaned from the statement of defence is that it is the second respondent’s case that the works had not reached practical completion, that the applicant should therefore not have issued a practical completion progress claim, let alone a final completion progress claim and that the applicant’s claim accordingly has no factual foundation. In his counterclaim the second respondent claimed damages, varying between R117 300.00 and R2 542 000.00, allegedly suffered by him as a result of the defective and incomplete services rendered by the applicant. The applicant delivered a reply to the second respondent’s counterclaim wherein it denied the second respondent’s claims set out in his counterclaim.
[6] Prior to the commencement of the arbitration hearing the parties and the arbitrator attended an inspection in loco at the second respondent’s house. The second respondent raised his complaints as they walked through the house. At the hearing the applicant called as expert witnesses Gareth Fletcher, a quantity surveyor, Riaan Moller, a civil and structural engineer and Charles Poulton, an electrician to testify on its behalf. Richard Heny, the applicant’s managing member, also testified after which the applicant closed its case. The second respondent then gave his evidence-in-chief. During his cross-examination the second respondent left because, in his view, the first respondent was biased and there was according to him no point in continuing with the arbitration. Having heard submissions made by the applicant’s attorney, the arbitrator delivered an award dated 23 June 2016. It is that award that the applicant seeks this court to set aside.
[7] On the statements of claim, defence and counterclaim, the issues that the arbitrator had to decide were firstly, whether an amount of money was due and payable by the second respondent to the applicant for services allegedly performed by the applicant in terms of the building contract and secondly, whether the second respondent had a counterclaim for damages against the applicant. An arbitrator has no power or jurisdiction to decide a matter not pleaded.[1]
[8] The applicant claims that this application was made in terms of section 33 of the Arbitration Act[2] which provides for the setting aside of arbitration awards. Section 33 (1) reads as follows:
(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 its 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.”
[9] The second respondent submitted that the application amounts to an impermissible appeal against the arbitrator’s award and that the only two grounds upon which the applicant can rely in terms of section 33 (1) (b) is gross irregularity by an arbitrator in the conduct of the arbitration proceedings and exceeding his powers, both of which require a high threshold. It was submitted on the second respondent’s behalf that the applicant did not meet that threshold. It is pointed out that both in his heads of argument and at the hearing Mr Paterson, counsel for the applicant, relied only on gross irregularity as a ground for the review of the arbitration award.
[10] The grounds for any review as well as the facts and circumstances upon which an applicant wishes to rely must be set out in the founding affidavit[3], amplified in a supplementary founding affidavit after receipt of the relevant record. The applicant did not rely on misconduct or an improperly obtained award referred to in section 33 (1) (a) or (c) of the Act. In its affidavits the applicant claimed that it relied firstly, on the two grounds contained in section 33 (1) (b), namely gross irregularity and the exceeding of power and secondly, a host of other grounds which, as correctly pointed out by Mr Schӓfer, counsel for the second respondent, were in terms of the Act not available to the applicant in proceedings of this nature. The only grounds upon which a court may review an arbitration award are those procedural irregularities stipulated in section 33 (1) of the Act. When parties conclude an arbitration agreement, by necessary implication they waive the right to rely on any further ground of review, common law or otherwise, other than those set out in section 33 (1) of the Act[4].
[11] The applicant articulated the grounds upon which it sought to have the arbitration award set aside in paragraph 101 of Mr Heny’s founding affidavit. Paragraph 1 of the award refers to payment to the applicant, paragraph 2 thereof to the non-completion of the works, paragraph 3 thereof to excessive and ongoing sagging of a major structural beam and paragraph 4 thereof to glazing of the north and west faces of the building. Paragraph 101 reads as follows:
“I will now deal with the award by the arbitrator, which is clearly tainted by a gross irregularity and/or where he exceeded his powers, as follows:
101.1 Ad paragraph 1 thereof:
101.1.1 The arbitrator has failed to have any regard to Winterbach’s confirmation that the defects and snags had been completed and confirmed by way of e-mail (annexure “RH8”) and the lengthy period that expired before Winterbach instituted his alleged “counterclaim”, which delay, is telling in the extreme.
101.1.2 The remaining summary of the facts by the arbitrator are correct.
101.2 Ad paragraph 2 thereof:
There is no evidence to suggest that Winterbach signed any claims or that he complied with the JBCC as principal agent. He simply paid as claimed by the applicant.
101.3 Ad paragraph 3 thereof:
Although the arbitrator has given a courtesy summary of Winterbach’s defence and counterclaim, he fails to understand that a large portion of Winterbach’s claim is an alternative remedy which is not supported by any evidence.
101.4 Ad paragraph 4 thereof:
101.4.1 It is significant that the arbitrator finds that the applicant’s final account is reasonable and accurate and that Winterbach had agreed to the variations by not objecting thereto and acquiescing to the various accounts.
101.4.2 The arbitrator also significantly found that Winterbach had abandoned his contractual responsibilities as principal agent and failed to furnish a final account in terms of the JBCC.
101.4.3 The arbitrator then finds that Fletcher was a credible and honest witness and that his evidence was to be accepted.
101.4.4 The arbitrator’s finding that Winterbach took possession and occupation of the property towards the end of December and possibly January, does not take the matter any further as Winterbach failed to furnish a final account or any certificates for another two years.
101.4.5 The arbitrator then finds that the failure to build a chimney is defective work and this failed to take into account the evidence that the plans had been amended to make no provision for a chimney as Winterbach chose to have an extractor fan.
101.4.5 The arbitrator then found Moller to be a credible witness and accepted his evidence. That put paid to Winterbach’s allegation of a collapsing beam that would cause the entire house to collapse and kill people.
101.4.6 The arbitrator’s finding that the faults in the glazing was attributable to the applicant entirely ignores the fact that Winterbach nominated the glazing company for reasons given above and was therefore responsible for any defects relating thereto. At no stage were these issues raised until the counterclaim was filed by Winterbach and after more than a year. Winterbach is fully aware of the fact that any nominated sub-contractor, or sub-contractor, is liable for defective work as a matter of contract and law. No evidence was led by Winterbach in regard to this claim nor was the quantum of this claim quantified by an expert, or Winterbach.
101.4.7 The arbitrator’s findings in respect of the carpets is also flawed and especially his finding that these carpets should be replaced in their entirety as Winterbach only complained about one bedroom and not the entire double story house. He thereby exceeded his powers and committed a gross irregularity.
101.4.8 The arbitrator’s finding that Poulton did not supervise the work properly is also inconsistent with the evidence. Poulton took full responsibility for the installation of electrical works and this complaint was never raised by Winterbach prior to his counterclaim.
101.4.9 The issue of the patio tiles was fully dealt with in argument by the applicant’s legal representative and a concession made that this would be replaced.
101.4.10 The arbitrator also correctly finds that Winterbach did not prove his damages for “snagging” or the allegation of theft.
101.4.11 The arbitrator’s finding that the Koi pond was replaced at Winterbach’s insistence is also correct.”
[12] Mr Schӓfer submitted that the manner in which the founding papers were drafted require stern censure. He submitted that it was only on receipt of the applicant’s heads of argument that the applicant’s case was crystallised. There is merit in the criticism of the applicant’s founding papers. I need to determine whether the applicant clearly identified the facts upon which it relied for the relief sought.[5] It is trite that in motion proceedings the facts set out in the founding affidavit must not only be set out simply, clearly, in a chronological sequence and without argumentative matter,[6] they must also be set out such as to inform the respondent of the case that he or she is required to meet.[7]
[13] It is open to a party in motion proceedings to advance legal arguments, as opposed to factual arguments, in support of the relief or defence claimed by it, even where such arguments are not specifically raised in the affidavits, provided that all relevant facts are before the court and the arguments raised are based on the facts alleged.[8] Where the point upon which the arbitrator’s award is sought to be reviewed relates only to the merits of the arbitration, it cannot be described as a gross irregularity.[9] The arbitrator’s award relevant to the beam, glazing and carpets is of a factual nature, not an error of law.
[14] Can it be said that the facts contained in the founding affidavit, more particularly paragraph 101 thereof, are sufficient to inform the second respondent that he was called upon to meet a submission to the effect that the arbitrator committed a gross irregularity when he made an award of specific performance in favour of the second respondent in relation to the beam, glazing and carpets? Insofar as the beam is concerned, the second respondent complained at the arbitration hearing that the beam was not structurally sound, likely to collapse and would cause cracks in the walls. Mr Moller testified that those cracks will happen but that there was no point in sealing them until the building had settled. The arbitrator accepted Mr Moller’s evidence that there was no indication of structural failure of the beam. He was satisfied with the applicant’s work in respect of the beam. He nevertheless ordered the applicant to “carry out remedial work to the cracks at its own cost” to the second respondent’s satisfaction. Mr Paterson submitted that the award, that he must do remedial work, constitutes a gross irregularity because the second respondent did not seek an order for specific performance, but damages, in his counterclaim.
[15] For the submission relevant to the beam, Mr Paterson relied on the second paragraph 101.4.5 of the founding affidavit. The facts contained in that paragraph are firstly, that the award is tainted by a gross irregularity; secondly, that the arbitrator found Mr Moller to be a credible and acceptable witness; and thirdly, that the arbitrator did not accept the second respondent’s contention that the beam would cause the house to collapse and kill people. In my view those facts did not alert the second respondent to the fact or even a possibility that he would face a submission at the hearing of the application to the effect that the arbitrator committed a gross irregularity on the basis that he ordered specific performance when none of the parties claimed such relief. Insufficient facts were contained in the applicant’s founding and replying affidavits to sustain Mr Paterson’s submission. Accordingly, that submission, no matter how attractive, cannot be sustained for the simple reason that it is not based on facts set out in the applicant’s affidavits. In the circumstances, Mr Schӓfer’s submission, that “the applicant has not made out a sufficient case for relief under section 33 (1) (b) of the Arbitration Act 1965”, must be sustained, certainly insofar as it relates to the applicant’s submission that the arbitrator ordered specific performance when neither the applicant nor the second respondent sought such relief.
[16] The second respondent complained that the glazing had failed in that the doors rattle excessively in the wind, the door’s shape distorts and the door cannot be closed or locked and the ferrous components are rusting. The arbitrator found that the above complaints were confirmed during the inspection in loco on 23 October 2015. The second respondent also complained that the glass that was used was too thin to comply with industry standards. The arbitrator found that it appeared that the second respondent approved the thickness of the glass on the basis that he had received a discount therefor. The arbitrator found that the glazing to the north and west faces of the building was appalling. He ordered the applicant to replace, at his own cost, all of the doors to the second respondent’s satisfaction and to replace any glazing which is not to industry standards, also to the second respondent’s satisfaction.
[17] The question of the applicant’s liability for the glazing was an issue before the arbitrator. Mr Heny dealt with that issue in his evidence. His evidence was that the second respondent did not employ the applicant to do the glazing but another entity, The Aluminium House. Despite the issue having been raised and despite evidence having been advanced by the applicant on why was not liable for the glazing, the arbitrator ordered the applicant to replace all of the doors and the glazing to the second respondent’s satisfaction without deciding the real issue that was placed before him, namely whether it was the applicant or The Aluminium House that was liable and why. Mr Paterson submitted that the arbitrator’s award in this regard was not based on any evidence and that the making of the award without the real issue having been decided in the award constitutes a gross irregularity. Mr Schӓfer submitted that the applicant’s submission was not properly raised in the founding affidavit and that the applicant is precluded from raising that submission for the first time in its heads of argument.
[18] In his founding affidavit Mr Heny alleged that it was clear that the second respondent wanted to have the benefit of cheaper sub-contractors that could be nominated directly by him and prices negotiated by him with the sub-contractors. Mr Heny furthermore alleged that although he recommended an entity at Port Alfred to do the aluminium windows and doors, the second respondent insisted that another contractor from East London be utilized. Mr Heny then set out in paragraph 101.4.6 the grounds on which the applicant seeks the arbitrator’s award to be set aside in respect of the glazing.
[19] The applicant did not allege in the founding affidavit that the award, that the applicant must redo the glazing, was not based on any evidence. In paragraph 101.4.6 Mr Heny alleged only that the second respondent was aware that any sub-contractor is liable for defective work “as a matter of contract and law” and that the second respondent did not lead evidence in regard to the defective glazing nor was his claim in that regard quantified. Can it be said that the above facts alerted the second respondent to the fact that the applicant’s case is that the arbitrator committed a gross irregularity when he ordered the applicant to redo the glazing without having first deciding the real issue that was placed before him, namely whether the second respondent employed the applicant or The Aluminium House to do the glazing and thereafter the ancillary issue that the award in that regard was in any event not based on any evidence? Regard being had to the preamble of paragraph 101, the second respondent was aware that the applicant alleged a gross irregularity. Mr Heny also alleged in paragraph 101.4.6 that the nominated sub-contractor or sub-contractor was responsible for any defects relating to the glazing. The above facts do not by any stretch of the imagination amount to an allegation that the arbitrator committed a gross irregularity on the basis that he ordered the applicant to redo the glazing, when none of the parties sought that relief, that the arbitrator made an award without first deciding the real issue that was placed before him and that he made an award which is not based on evidence. That being the case, Mr Schӓfer’s submission, that the applicant’s submission relating to the glazing was not properly raised in the founding affidavit and that the applicant can accordingly not rely on it, must be sustained.
[20] The second respondent’s complaint at the arbitration was that the applicant fitted the carpets too early – at a time when wet works were still in progress. In the process the carpets were soiled to the extent that the underfelt was damaged. The second respondent therefore claimed damages to repair the damaged carpets. The arbitrator’s award was that all the carpets and underlay were to be replaced by the applicant at its own costs to the second respondent’s satisfaction. The arbitrator arrived at that conclusion because he believed the second respondent who “stated that when he moved into the bedroom on 1 October 2013 the carpet had already been laid”. It was submitted on the applicant’s behalf that it was not open to the arbitrator to accept the version that the second respondent put to Mr Heny because the second respondent was not cross-examined on the carpet issue as he stormed out of the arbitration hearing while being cross-examined. The submission was that the acceptance of the second respondent’s version under the above circumstances constituted a gross irregularity.
[21] The second respondent submitted that there was no attack in the founding affidavit on the arbitrator’s finding that the carpets were laid before the works were completed. The applicant’s complaint, insofar as it is relevant to the carpets, is contained in paragraph 101.4.7 of the founding affidavit. In that paragraph the applicant complained that the arbitrator’s finding that the carpets be replaced in their entirety was flawed because, according to Mr Heny, the second respondent only complained about one bedroom and not the entire house.
[22] With respect, the facts set out in Mr Heny’s affidavit could not have prepared the second respondent for a submission that the arbitrator committed a gross irregularity on the basis that he made a finding based on an untested version whereas there was a version before him which was subjected to cross-examination. In my view it is not open to the applicant to rely on this submission when no factual basis was laid for it in the founding affidavit.
[23] In the result, the application is dismissed with costs, such costs to include the costs occasioned by the amendment of the notice of motion.
___________________
G H BLOEM
Judge of the High Court
For the applicant: Adv T J M Paterson SC, instructed by Wheeldon Rushmere and Cole, Grahamstown
For the first respondent: No appearance
For the second respondent: Adv L I Schӓfer, instructed by Nettelton Attorneys, Grahamstown
Date heard: 9 February 2017
Date of delivery of the judgment: 25 April 2017
[1] Hospital and Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing and Consulting (Pty) Ltd and others [2007] ZASCA 163; 2008 (2) SA 608 (SCA) at 617A.
[2] Arbitration Act, 1965 (Act No. 42 of 1965).
[3] Telcordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 (SCA) at 287A-B.
[4] Leadtrain Assesments (Pty) Ltd and others v Leadtrain (Pty) Ltd and others 2013 (5) SA 84 (SCA) at 87E and Telcordia (supra) at 292A-B.
[5] Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and others [2004] ZACC 15; 2004 (4) SA 490 (CC) at 507E.
[6] Swissborough Diamond Mines (Pty) Ltd and others v Goverment of the Republic of South Africa and others 1999 (2) SA 279 (T) at 324D.
[7] Shakot Investments (Pty) Ltd v Town Council of the Borough of Stanger 1976 (2) SA 701 (D) at 704F-G referred to with approval in National Council of Societies for the Prevention of Cruelty to Animals v Openshaw [2008] ZASCA 78; 2008 (5) SA 339 (SCA) at 349A-C.
[8] Cabinet for the Territory of South West Africa v Chikane and another 1989 (1) SA 349 (A) at 360F-G.
[9] Goldfields Investment Ltd and another v City Council of Johannesburg and another 1938 TPD 551 at 560.