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Pro-Khaya Constructions CC v Strata Civils and Others (CA247/2018) [2019] ZAECGHC 115; [2020] 1 All SA 267 (ECG) (19 November 2019)

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IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: CA247/2018

Date heard: 18 November 2019

Date delivered: 19 November 2019

REPORTABLE

In the matter between:

PRO-KHAYA CONSTRUCTIONS CC

Appellant

and


 

STRATA CIVILS


First Respondent

TONY ASHFORD


Second Respondent

JDM DRILLING (PTY) LTD


Third Respondent

WILLEM HENRIK OLIVIER


Fourth Respondent

JUDGMENT

LOWE, J

INTRODUCTION

[1]          This is an appeal against the order of Beshe J dismissing Appellant’s Application (Applicant a quo).  The Appeal is with the leave of the Court a quo to the Full Bench.  First Respondent opposes the Appeal.  Second to Fourth Respondents did not oppose the Application and Third Respondent filed a Notice to Abide. 

[2]          The issues in the Appeal mirror those in the Application and can be reasonably succinctly stated. 

[3]          The Application sought the following relief in terms of Section 3(2)(c) of the Arbitration Act 42 of 1965 (The Act):

1.        That the arbitration agreements between the Applicant and the:

1.1       First Respondent, conducted under the auspices of the Second Respondent;  and

1.2       Third Respondent conducted under the auspices of the Fourth respondent shall in terms of the provisions of section 3(2)(c) of the Arbitration Act, No. 42 of 1965, cease to have effect with reference to any dispute referred.

2.         That within 30 days after the court having granted an order in terms of paragraph 1 above, the Applicant institute consolidated proceedings against the First and Third Respondents (jointly and severally) in this court for the relief claimed in the arbitration proceedings (as amplified, where necessary) referred to in paragraph 1 above.

3.         That the costs of the arbitrations be reserved for determination by the trial court in the action proceedings to be commenced. 

4.         That the costs of this application be borne by the Applicant, save in the event of it being opposed in which event the costs of opposition be borne by the party so opposing this application.

5.         Further and/or alternative relief.”

[4]          Section 3(2)(c) of the Act provides:

(2) The court may at any time on the application of any party to an arbitration agreement, on good cause shown

(a)        ...

(b)        ...

(c)        order that the arbitration agreement shall cease to have effect with reference to any dispute referred.”  (own emphasis)

THE PROPER APPROACH TO APPLICATIONS

[5]          Generally applications are not designed to resolve factual disputes between the parties and are decided on common cause facts.  Probabilities and onus issues are not amenable to being determined in motion proceedings[1].

[6]        As is set out in Civil Procedure in the Supreme Court[2]:

It is well established under the Plascon-Evans rule that where in motion proceedings disputes of fact arise on the affidavits, a final order can be granted only if the facts averred in the applicant’s affidavits, which have been admitted by the respondent, together with the facts alleged by the latter, justify such order.  It may be different if the respondent’s version consists of bald or uncreditworthy denials, raises fictitious disputes of fact, is palpably implausible, far-fetched or so clearly untenable that the court is justified in rejecting them merely on the papers.” [3]

[7]          The Court has to accept those facts averred by Appellant that were not disputed by Respondent, and Respondent’s version insofar as it was plausible, tenable and credible[4].

[8]          This however is not the end of the matter as is pointed out in Harms Civil Procedure in the Supreme Court [5] as follows:

It is accordingly generally undesirable to endeavour to decide an application upon affidavit where the material facts are in dispute.  In such a case it is preferable that oral evidence be led to enable the court to see and hear the witnesses before coming to a conclusion.[6]  On the other hand, it is equally undesirable for a court to take all disputes of fact at their face value.  If this were done a respondent might be able to raise fictitious issues of fact and thus delay the hearing of the matter to the prejudice of the applicant.[7] In every case the court should examine the alleged disputes of fact and determine whether in truth there is a real[8] issue of fact that cannot be satisfactorily resolved without the aid of oral evidence.[9]  Whether a factual dispute exists is not a discretionary decision;  it is a question of fact and a jurisdictional pre-requisite for the exercise of the discretion given by the rule.[10]  It is not a question of any difference of character between the various kinds of claims being enforced, but a question of the proper method of determining in each case the facts upon which any claim depends.[11]

[9]          In this matter there are no relevant irresoluble factual disputes which are real and genuine.    

THE BACKGROUND

[10]       Appellant (“Pro-Khaya”) on or about April/May 2015 was awarded a contract by Coega Development Corporation (Pty) Ltd (“CDC”) for works: CDC/132/5 being extensions and additions to their existing Dairy Zone 3.

[11]       This required Pro-Khaya to build extensions to an existing building as well as to build additional structures in Dairy Zone 3 and install a fire reticulation system. 

[12]       On 20 May 2015 Pro-Khaya and First Respondent, Strata Civils (“Strata”) concluded a so-called domestic subcontractor agreement, Strata to perform works: Part I Civils and Part 2 Fire Reticulation, relating to and forming part of the Pro-Khaya contractual works.  

[13]       Of particular importance was Part 2 requiring it to lay a fire reticulation system underground in open excavated areas, all structures to be connected to the fire system.

[14]       There was an existing road network and as Strata did not have the required expertise relevant in this regard Pro-Khaya entered into a further domestic subcontract agreement on 18 May 2015, this time with Third Respondent JDM Drilling (“JDM”), it being obliged to effect the works relevant to horizontal drilling/pipe jacking as required in the project works. 

[15]       It was thus that both Strata and JDM were appointed in respect of the laying of fire reticulation pipes albeit in separate project areas.  The central issue was the need to connect both sets of pipes to each other by way of couplings.  Both agreed on a so-called Klamflex dedicated flange adaptor (T1600/3).

[16]       As things turned out on 1 December 2015, subsequent to installation tests, it was disclosed that there was “slippage” and that the pipes were not connecting properly to each other – the works were rejected and remedial works were required to be done. 

[17]       Pro-Khaya was unsure which of the subcontractors was at fault (or whether both were) and JDM declined to perform the remedial works this being attended to by Strata which was paid therefor in a sum of R200,000.00 on the assumption that it was not to blame.  

[18]       Subsequently Pro-Khaya alleges that it established that both Strata and JDM were jointly to blame for the defective works.

THE STRATA ARBITRATION

[19]       A dispute then arose between Strata and Pro-Khaya as to payment of Strata’s fees on account of extension of subcontract time for completion of the works which had been delayed for various reasons including (but not only) the rejection of the fire system “and the involvement of JDM”.  

[20]       All parties correctly accepted that this dispute was subject to arbitration in terms of a written arbitration agreement (later confirmed in writing by the Arbitrator), and the Second Respondent was appointed accordingly. 

[21]       The referral related to Strata’s claims, seven in number. 

[22]       Pleadings were exchanged between Pro-Khaya and Strata, and Pro-Khaya lodged a counterclaim relevant to the problem that had arisen in respect of the fire reticulation system and claimed damages (R1,107,473.56) and return of the R200,000.00 paid to Strata to remedy the defects.

[23]       The arbitration proceeded before Second Respondent on 5 and 6 June 2017.  Apparently evidence was led being Strata’s contract manager on its claims and in respect of the defence of Pro-Khaya’s two witnesses – there was also a demonstration as to how the couplings had failed. 

[24]       For reasons which escape me the parties agreed that the counterclaim be separated and suspended, on a jurisdictional point being raised (but not pleaded).  It seems clear that the counterclaim was in fact part of the defence.  Strata contended that there was no agreement that “this issue” would form part of the arbitration.  The issues, above including the position of the counterclaim, were it seems argued post-evidence and Second Respondent issued a ruling on 30 August 2017.  The exact ruling is on the counterclaim issue alone.  The Ruling is “... the Respondents counterclaim is admissible and must be taken into consideration by me in this arbitration”.  As to “publication of the Arbitral Award” in the same ruling Second Respondent advised that he would withhold publishing his award pending the High Court Ruling on the Application.  It is implicit in this that the Arbitrator was, in his view, in a position to deliver an award presumably on all the relevant issues. 

THE JDM ARBITRATION

[25]       Much as above Pro-Khaya and JDM agreed to arbitrate their disputes before Fourth Respondent.  Pro-Khaya as claimant. 

[26]       Pleadings were exchanged relevant to the allegation that JDM failed diligently and expeditiously to execute the abovementioned remedial works – resulting in the appointment of Strata to do same – Pro-Khaya claiming damages of R1,995,652.32 with an additional claim of R4,115,000.00 so-called delay damages. 

[27]       A pre-arbitration meeting was held, at which JDM objected to Fourth Respondent’s appointment which was overruled. 

[28]       A statement of defence was then filed by JDM.

[29]       The matter has not proceeded further save for a pre-arbitration meeting but is clearly closely linked to the Strata arbitration, on certain issues but not by any means all. 

[30]       The two arbitrations were not consolidated in one proceeding before the same single Arbitrator.

IN SUMMARY

[31]       Both Strata and JDM were domestic subcontractors to perform work on the fire system at the instance of Pro-Khaya which held a contract for the entire project with CDC. 

[32]       The Strata and JDM work, whilst separate in context, was linked in scope and required the pipes fitted by each to be connected.

[33]       The connection joint failed due to “slippage” and required remedial works to be performed (by Strata) at additional expense and with other consequences including delay and alleged costs.

[34]       Both subcontracts and the parties provided for and agreed to arbitration in writing (or at least the contrary is not contended).

[35]       Strata launched arbitration proceedings relevant to the above against Pro-Khaya which counterclaimed in the arbitration, which proceeded to evidence on the Strata claim, the counterclaim being suspended but apparently now to  be adjudicated by the Arbitrator. 

[36]       Pro-Khaya launched arbitration proceedings against JDM, also relevant to the above.  Both arbitrations relate to some (but not all) similar content and clearly overlap to some extent (see below).

[37]      Pro-Khaya now wishes to set this all aside and seeks to issue consolidated proceedings against Strata and JDM in this Court (jointly and severally) for the relief claimed in the arbitration proceedings, the costs in the arbitration to be reserved for this Court. 

[38]       This seems to overlook that Pro-Khaya, (Applicant in a counterclaim in the Strata arbitration) also, as claimant, launched proceedings in the JDM matter when it could then already have sought to consolidate both issues in a single arbitration (if this was in fact justified which is a disputed issue).  No such attempt was made by any of the parties at the time. 

[39]       The Strata arbitration is mostly, if not completely, before the Arbitrator – evidence having been led and only possibly the question of argument and/or the counter-claim to be adjudicated and a final award given.  The Arbitrator seems to be poised to give his award.

[40]       The JDM arbitration has exchanged pleadings and has had a pre-arbitration hearing. 

[41]       All the above would be wasted and would have to be revisited at great expense, if the matter commenced afresh. 

[42]       This application appears to be an afterthought or is perhaps due to a new legal team taking over for Pro-Khaya. 

[43]       The prejudice to Strata arising from the proceedings being set aside is readily apparent. 

THE LAW

[44]        Section 3(2)(c) provides that a Court may set aside an arbitration agreement “on good cause shown”. 

[45]       In this context the Court’s discretion must be judicially exercised and clearly there must be “good cause” before a Court will release a party to an arbitration agreement and refer this to Court. 

[46]       The authorities show that this discretion is seldom exercised[12].

[47]       Such  a discretion has however been exercised where:

[47.1]   Defendant’s counterclaim affected third parties not subjected to the arbitration agreement[13];

[47.2]   Allegations of fraud were made[14];

[47.3]   There were a number of legal problems relevant and where the technical matters are easily to be resolved by a Court[15]

[48]       The other side of the coin is that:

[48.1]   A Court will not set aside an arbitration agreement in the absence of good cause[16].  (Which illustrates by analogy that where there are issues requiring other than legal expertise, arbitration before an expert is usually preferable.)

[48.2]   The issue of demonstrating good cause is not easily discharged and there must be compelling reasons for doing so. 

[48.3]   Where relevant parties are parties to the arbitration agreement (being those with an interest in the proceedings) this militates against good cause, or put differently, where some parties relevant are not parties to the arbitration agreement and there is a risk of a multiplicity of proceedings with conflicting decisions and costs, this may demonstrate good cause[17]

[49]       The requirements of “good cause” was discussed in Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co. (Pty) Ltd [18], Colman J said the following:   

Such an onus is not easily discharged. There are certain advantages, such as finality, which a claimant in an arbitration enjoys over one who has to pursue his rights in the Courts; and one who has contracted to allow his opponent those advantages will not readily be absolved from his undertaking ...  the discretion of the Court to refuse arbitration under a submission was to be exercised judicially, and only when a "very strong case" for its exercise had been made out.” 

[50]       The Courts have said further that “it is not possible to define, and certainly it is undesirable for any court to attempt to define with any degree of precision, what circumstances would constitute a ‘very strong case’”[19].

[51]       Appellant relies heavily on Welihockyj (supra)[20].  The Court recognises the benefit of a Court on occasions it holding that:

A court of law will not be curtailed by such factors and would be in a position to adjudicate and conclude all the interwoven issues in one and the same process”.

[52]       In that matter there were allegations of fraud or criminal conduct – and the Arbitrators limited powers[21], and the following was held:

[26] From the above it is clear that the disputes between the parties which the fourth respondent is required to adjudicate involve serious allegations of fraudulent conduct giving rise to damages claims in excess of R130 million. Some of these disputes also relate to the alleged conduct of third parties.

...

[29] On a conspectus of all the facts and circumstances before the Court it is clear, in my view, that the powers of the fourth respondent, wide as they may be in terms of clause 20 of the SOB, do not enable him to properly adjudicate all the disputes submitted to him. It was therefore to be expected that the parties would agree to conduct the proceedings in a manner similar to ordinary judicial proceedings as opposed to that of a valuator or other expert who acts in an informal and summary manner without the need to observe any formalities or procedures and who decides the matter on the basis of his own experience and skill instead of upon evidence placed before him by the parties to the dispute.

...

[35] Section 3(2) of the Act requires the applicants to show 'good cause' in order to succeed with the application. The applicants rely on the following considerations: Serious allegations of fraud against the applicants justify a public hearing with the right of appeal; the disputes have become interwoven in various other proceedings already pending in the High Court, which will result in a costly duplication of dispute resolution; the pleadings have not closed and the disputes can thus easily be continued in the High Court; and third parties and further claims are involved in the disputes, which parties are not subject to the arbitration agreement.

The respondents' opposition to the issue of 'good cause' is, briefly stated, the following: the pending proceedings are too advanced; other options are available to the applicants to have their names cleared in public; costs will be wasted; there will be an overlap of various issues in the pending litigation; and the relief will result in a lengthy delay.

[36] Regarding the allegations of fraud reference may be made to Metallurgical & Commercial Consultants (Pty) Ltd v Metal Sales Co  C (Pty) Ltd 1971 (2) SA 388 (W). At 392I - 393F the following is stated per Colman J:

'Mr Morris put forward more than one argument. In the first place, he says, disputed averments of fraud should be ventilated, not in the privacy of an arbitration, but in open Court. For that he cites Russell on Arbitration 18th ed at 21, where the learned author says that although a question relating to fraud can be settled by arbitration, it is usually better settled in Court, so that the Court will usually refuse to stay an action by reason of a submission to arbitration in such a case.

The last proposition, however, would seem to be more broadly stated than the authorities warrant. A distinction must be drawn between the case where it is the person charged with fraud who seeks a hearing in open Court, rather than in the arbitration for which he has contracted, and the case where it is the person charging fraud who claims that relief. In the former case it seems to have been accepted that the claim for a hearing in Court will ordinarily be acceded to (see Russell v Russell  (1880) 14 ChD 471Pennant v Kelly  1908 TH 9). It is not difficult to see why that should be.  If a man who has been charged with fraud wishes an opportunity to demonstrate his innocence in open Court, he should not lightly be denied the publicity which he seeks, or the benefit of having an adjudication by a judicial tribunal, rather than by an arbitrator who, unlike the proposed arbitrator here, may be untrained in law and inexperienced in the evaluation of evidence. And what is perhaps even more important is this: a finding by an arbitrator that fraud has been committed is final, whereas from such a finding in a Court there is a right of appeal.

In the case where it is the person charging another with fraud who seeks to be relieved of his contractual undertaking to submit the dispute to arbitration, these considerations are of far less weight. There is something to be said, it is true, for the proposition that an inquiry into an alleged fraud is always, to some degree, a matter of public concern, and should therefore be conducted in public (see Willesford v Watson  LR 14 Eq 572 at 577 - 8). But there are strong counteracting considerations in the case where the person to be charged with fraud claims his rights under a submission to arbitration. They were trenchantly expressed by Jessel MR in Russell v Russell (supra at 476 - 7), approved by Innes CJ in Pennant v Kelly (supra), and applied by Jones J in Blotnick v Turecki  1944 CPD 100. The weight of authority would therefore seem to be against the respondent on this point. And, insofar as there may be any weight in the general consideration of public policy mentioned by me, I would say that if the respondent is genuine in its assertion that it will bring action on its claims, there will in any event be a public ventilation of the alleged frauds in that action, and public policy will thus be served.'  

See also Walters v Allison  1922 NLR 238 at 246 - 7 and Butler and Finsen Arbitration in South Africa  (supra at 65). In casu it is, of course, the applicants who desire the exclusion of the arbitration, who stand accused of fraudulent conduct, misappropriation and criminal conduct. These allegations form part of most of the respondents' counterclaims and for this reason alone it would, in my view, be wrong not to allow the applicants the opportunity of having these allegations ventilated in open court and with a right of appeal. Having regard to all the circumstances, it is not, in my view, correct to argue that the Anton Piller and the restraining applications would afford the applicants a sufficient opportunity to clear their names. There is another reason for upholding the applicants' contentions. The issues in the respondents' counterclaims also relate to and affect third parties which are not subject to the provisions of the SOB and in respect of which the fourth respondent has no powers of investigation. A court of law will not be curtailed by such factors and would be in a position to adjudicate and conclude all the interwoven issues in one and the same process. The further arguments on behalf of the respondents do not detract from the aforesaid conclusions.

[37] As far as the applicants' claim in convention is concerned, it appears that the respondents' defence thereto relates, to a large degree, to the fact the applicants owe a much larger amount to the respondents as a result of the counterclaims. To some degree the allegations of fraudulent conduct, misappropriation and criminal conduct are also interwoven in both claims in convention and reconvention. In my view, it would be impractical and undesirable to direct that the applicants' claim shall remain the subject-matter of the arbitration before the fourth respondent whilst that process  shall cease to have effect in respect of the respondents' counterclaims. As regards the costs thus far incurred in the arbitration for which orders have not already been issued, I am of the view that such costs should be costs in any future High Court proceedings.”

[53]       This all demonstrates that this decision is entirely different and completely distinguishable from this matter and bar general assertions as to the meaning of good cause is not of great assistance herein.

[54]       In De Lange v Methodist Church (supra), a crucial decision not referred to by the parties in their heads, the Constitutional Court held inter alia as follows:

High Court  

[17] The respondents met Ms De Lange's claim by contending in limine (at the outset) that Ms De Lange was bound by the Laws and Discipline and had to submit to arbitration. Ms De Lange retorted that it would be  unjust and unrealistic to expect her to take part in 'an arbitration process that would be futile, unfair and serve no purpose'.

[18] The High Court noted that the Act and the Constitution existed side by side and that Ms De Lange was bound to undergo arbitration, unless the court found that, under s 3(2) of the Act, she had shown good cause to deviate from the arbitration agreement. Ms De Lange complained that there had been a long delay in the finalisation of the arbitration agreement and that there still existed no arbitration agreement that had been signed by both parties. She argued that the conduct of the convener and the Church indicated bias. The bias charge was based on the deletion of Ms De Lange's clause 7 from the agreement that she had signed. It was also based on the insertion of the Church's amended clause 7 as well as clause 12 in the final agreement which the convener signed on behalf of Ms De Lange. 

[19] The High Court held that there was no good reason to object to the insertion of the Church's amended clause 7. All the clause did was state the usual power of an arbitrator. Ms De Lange's clause 7 simply dealt with the non-waiver of rights. The court held that the final agreement did not take away or infringe on any of the rights that Ms De Lange sought to protect.   Ms De Lange also objected to the appointment of a member of the Church as the arbitrator. However, the court held that this alone was not a cogent complaint and did not support the allegation that it would result in bias and an arbitration process that would not be objective.  The court held further that the issues to be referred to the arbitrator would be wide enough to address any concerns that Ms De Lange had.  It concluded that she must submit to arbitration as it could not be said that arbitration would be unfair or futile. 

Supreme Court of Appeal

[20] Ms De Lange appealed to the Supreme Court of Appeal. Her appeal was dismissed. The core issue before that court was whether the Church had adopted a rule that precluded her, a minister of the Church, from announcing her intention to marry her same-sex partner.  The court held that because the claim based on discrimination on grounds of sexual orientation was disavowed, it was 'unnecessary to engage with the collision between the rights of freedom of association and religious freedom on the one hand, and the right to equality on the other'. 

...

[23] Fourth, the court refused to void the arbitration agreement on the ground that the appointment of the arbitrator, a member of the Church, was understandable. It ensured that people familiar with the workings of the Church were 'appointed to the rather sensitive task of adjudicating disciplinary disputes' of this sort.  This was neither biased nor reasonably perceived to be biased. The fifth reason was that arbitration was the appropriate forum to decide the factual dispute which was the crux of this matter, that is, whether the Church had adopted a rule that precluded Ms De Lange from announcing, from the pulpit, her intention to  marry her same-sex partner, and whether the district disciplinary committee and the connexional disciplinary committee were misdirected in finding that Ms De Lange was guilty of breaching the rules of the Church. Arbitration would therefore not be in vain.

[24] The court held that arbitration proceedings are ideal because the dispute was 'quintessentially [of] the kind ... that a secular court should avoid becoming entangled in'.  The court held that this matter was not one for the courts, and that the sensitivity of the issues — church doctrine and governance related to marriage, a sacrosanct institution — were best left to the Church to determine internally.  The court further held that the determination of who was morally and religiously suited to assume ministerial duties struck at the core of religious function. 

...

[36] The question still remains whether Ms De Lange has advanced good cause to escape the agreement. The Act is not particularly helpful on what could make up good cause. Nor have our courts expressly defined good cause. It is, however, clear that the onus to demonstrate good cause is not easily met.  A court's discretion to set aside an existing arbitration agreement must be exercised only where a persuasive case has been made out. It is neither possible nor desirable, however, for courts to define precisely what circumstances constitute a persuasive case.

[37] The Supreme Court of Appeal correctly ventured the view that the requirement of good cause in order to escape an arbitration agreement entails a consideration of the merits of each case in order to arrive at a just and equitable outcome in a specific set of circumstances. Put in another way: is it in the interests of justice to hold a party to an  arbitration agreement that would result in a futile, unfair or unreasonable outcome or perhaps an unconscionable burden? The Act is of the pre-Constitution kind. Now our understanding of good cause must embrace an enquiry into whether the arbitration agreement, if implemented, would unjustifiably diminish or limit protections afforded by the Constitution. Absent infringement of constitutional norms, courts will hesitate to set aside an arbitration agreement untainted by misconduct or irregularity unless a truly compelling reason exists.  As this court has itself stated —

'the values of our Constitution will not necessarily best be served by ... enhanc[ing] the power of courts to set aside private arbitration  awards. ... If courts are too quick to find fault with the manner in which an arbitration has been conducted ... the goals of private arbitration may well be defeated.' 

...

[43] I am persuaded by the submissions of the Church that arbitration  would be the ideal forum for Ms De Lange and the Church to see where the balance between dogma and tolerance should be struck. It is not only appropriate but it would be the best solution in the present circumstances. If the nature of the rule proscribing same-sex unions of ministers of the Church is vague and uncertain, domestic arbitration would again be the appropriate forum to provide clarity and indeed the reasonable accommodation that Ms De Lange urged upon this court to find and impose on the Church.

...

[45] The decisions of the High Court and Supreme Court of Appeal that no good cause has been shown to set aside the arbitration agreement cannot be faulted. Further, arbitration is the appropriate forum to decide if the line that has been drawn by the Church in Ms De Lange's case is acceptable. It would not be appropriate for this court to interfere at this stage, especially considering that the line is close to the Church's doctrines and values. No good reason has been shown why arbitration would not be suited to resolving the present dispute. In any event, the outcome of the arbitration would be open to judicial review and would create room for a fulsome and timeous pursuit of an equality claim.”

[55]       In Universiteit van Stellenbosch (supra) the following was said in a context very different from the present.  This does however deal with the multiplicity of proceedings issue[22]:

As to plaintiff's second ground for resisting the reference to arbitration (see (b) and (bb ) above): The Judge gave consideration to the fact that plaintiff's case against the other defendants could not be dealt with in terms of clause 26 and that a reference of first defendant's case to arbitration would result in a multiplicity of proceedings which in turn could lead to conflicting decisions, viz by the architect or arbitrator on the one hand and the Court on the other hand. He nevertheless came to the conclusion that first defendant's dispute should be dealt with in terms of clause 26. His reasons for so doing appear at 16E - 18A of his judgment.

...

It has always been recognized that an arbitration agreement does not necessarily oust the jurisdiction of the Courts; see The Rhodesian Railways Ltd v Mackintosh  1932 AD 359 at 375. See also s 3 (2) of the Arbitration Act 42 of 1965. However that may be, when a party to an arbitration agreement commences legal proceedings, a defendant who was party to the agreement and who has entered appearance to defend and not delivered any pleadings is given the right by s 6 of the Act to apply to the Court for a stay of the proceedings. The onus of satisfying the Court that it should not, in the exercise of its discretion, refer the matter to arbitration is on the party who instituted the legal proceedings. See Kathmer Investments (Pty) Ltd v Woolworths (Pty) Ltd 1970 (2) SA 498 (A) at 504H. It follows that the plaintiff had to discharge that onus. In Rhodesian Railways v Mackintosh (cited above) at 375 it was said that the discretion of the Court to refuse arbitration, where such an agreement exists, was to be exercised judicially, and only when a "very strong case" had been made out.

It is not possible to define, and certainly it is undesirable for any court to attempt to define with any degree of precision, what circumstances would constitute a "very strong case". In Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W) COLMAN J at 391H refers to English authorities which say:

"there should be 'compelling reasons' for refusing to hold a party to his contract to have a dispute resolved by arbitration".

It has also been said that before a court refuses a stay of proceedings it has to be satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement. See Bristol Corporation v John Aird & Co 1913 AC (HL (E)) 241 at 252,257 and 260.”

            ...

As to the undesirability of allowing two different proceedings in two separate tribunals, the dicta in the English Court of Appeal in Taunton-Collins v Cromie and Another  [1964] 2 All ER 332 are very apposite. At 333 Lord DENNING said:

"It seems to me most undesirable that there should be two proceedings in two separate tribunals - one before the official referee, the other before an arbitrator - to decide the same questions of fact. If the two proceedings should go on independently, there might be inconsistent findings. The decision of the official referee might conflict with the decision of the arbitrator. There would be much extra cost involved in having two separate proceedings going on side by side; and there would be more delay. Furthermore, as counsel for the plaintiff pointed out, if this action before the official referee went on by itself - between the plaintiff and the architect - without the contractors being there, there would be many procedural difficulties. For instance, there would be manoeuvres as to who should call the contractors, and so forth. All in all, the undesirability of two separate proceedings is such that I should have thought that it was a very proper exercise of discretion for the official referee to say that he would not stay the claim against the contractors."

At 334 Lord PEARSON said:

"It can be said in support of the application here that that is what the parties have agreed and that, when the question is brought before the Court, the Court should be willing to say by its decision what the parties have already said by means of their own contract. That is one principle. The other principle is that a multiplicity of proceedings is highly undesirable for the reasons which have been given. It is obvious that there may be different decisions on the same question and a great confusion may arise. Counsel for the plaintiff also was able to point out the serious procedural difficulties which might arise if one had an arbitration between two parties and an action between different parties."

See also in this regard the cases cited in the judgment a quo at 16F - G. As will be seen later the dicta of Lord DENNING in regard to the absence of the contractors from the trial proper and the possible manoeuvring as to who should call them are very apposite in our case.”

[56]       In Sera v De Wet (supra) [23] Viljoen J said the following relevant to allegations of fraud, credibility and technical issues:

This is purely a matter of credibility and if the tribunal hearing the matter were to find that the owner and the architect lied in order to try and justify the cancellation of the contract, it would amount to deliberate fraud. If, on the other hand, the tribunal were to find that they told the truth, it would still have to be decided whether, in view of the fact that the architect himself could determine the area to be tiled, notice to proceed with the vigour with which the applicant started the job, was not unreasonably and vexatiously given. The applicant convincingly alleges that the main cause of the delay was the failure of the architect to instruct him on the Italian tiles, and that the other delays, e.g. the failure to brick in the bath, the wash stand and the flower box, and to finish the cupboards in the bedroom, were all caused by his inability to proceed with the tiling work. This also is a matter of credibility and not a technical matter.

...

In my view, a Court of law is far better equipped to adjudicate upon the matters raised by the applicant. The outcome of the action proposed to be instituted by the applicant will hinge mainly upon the issue as to whether the contract was properly cancelled by the architect or not. The main ground for cancellation, as I have pointed out, was the alleged failure on the part of the applicant to proceed with the work diligently and expeditiously. On this issue the respondent will necessarily have to rely to a large extent on the evidence of the architect. Mr. Roux, for the respondent, has suggested that it is not certain that the architect will be called by the respondent if this matter goes to arbitration. I fail, however, to see how the respondent can do without the architect. The hearing, whether it be before an arbitrator or a Court, will not largely, if at all, involve expert evidence on technical matters peculiar to the building trade. I am of this view because the faulty workmanship now complained of was not, according to the architect's letter of cancellation, a ground for cancellation of the contract. It was only adverted to at a later stage. In the letter dated 20th December, 1972, from the respondent's attorneys, there is a brief reference to "work which is not of a proper standard." The letter does not specify what this work is. In the  respondent's papers the only unacceptable work complained of was the cupboards in the master bedroom, the cornices in the master bedroom, the waterproofing and plastering in the garage. It is true that reference is also made to "certain other defects in the house", but these are not detailed. I do not agree with the respondent who states in his affidavit that the crux of the dispute between himself and the applicant are technical points based, firstly, on the quality of the  applicant's work and, secondly, whether he was entitled to do no work on the site whatsoever from before 4th December, 1972, until the builders' holiday in December, 1972. The first dispute is of a technical nature, but an issue which is virtually, as I have endeavoured to show, an afterthought. The second dispute is not a technical matter. It is a simple factual dispute which will have to be resolved by the evidence of the architect and the respondent on the one side and the applicant on the other.

Mr. Roux, on behalf of the respondent, submits that the applicant has not shown good cause. Relying upon Elebelle  (Pty.) Ltd. v Szynkarski, 1966 (1) SA 592 (W), he argues that the possibility of a legal point arising, affords no reason for refusing a party his contractual right to go to arbitration. In Elebelle's case DE WET, J.P., referred to East Rand Proprietary Mines Ltd. v Cinderella Consolidated Gold Mining Co. Ltd., 1922 W.L.D. 122, the head-note of which reads:

"Where there is a submission to arbitration, the Court has a discretion to refuse to stay an action in a case where the issue between the parties is merely a question of law; but the Court will be guided in each case by all the circumstances, and the mere fact that there is a point of law to be determined, if there are other matters to be decided, is not sufficient."

I have pointed out that in my view there are a number of legal problems at stake in the dispute between the parties. In resolving the factual issues credibility will play an important  role. The technical matters which were raised after the so-called cancellation are easily resoluble by a Court of law. The first two circumstances are more properly, in my view, dealt with by a Court of law.”

[57]       Sera (supra) is most certainly distinguishable on the facts.  There were allegations of fraud, the issues of credibility were important and the technical issues were easily resoluble by a Court, not so here.

[58]       In my research and on the heads I can find no matter where a Court set aside an arbitration agreement part way through the proceedings after full evidence was heard.  This is no surprise for obvious reasons. 

[59]       Whilst it is so that in this matter there are two arbitrations before different Arbitrators about in part the same technical issue, that this is so, is due to the parties own doing. 

[60]       It would seem that now disenchanted with the Strata arbitration Pro-Khaya seeks to ease the pinch of the shoe in a way which may well fail to demonstrate good cause in favour thereof. 

THE COURT a quo

[61]       The finding by Beshe J that Appellant had not established compelling reasons to terminate the arbitration agreements was primarily based on: 

[61.1]   Second Respondent’s ruling that Pro-Khaya’s counterclaim formed part of the Strata arbitration and accordingly fell away as a ground supporting the application;

[61.2]   The case of Welihockyj being distinguishable as Applicants in that case had been accused of fraudulent conduct which should have been ventilated in open court;

[61.3]   The poor state of the record (in the Strata arbitration) not amounting to an insurmountable difficulty;  and

[61.4]   Applicant having agreed to the institution of two proceedings and the undesirability of parallel proceedings, rendering different conclusions, being in the nature of adjudication and litigation.

[62]       In my view Beshe J was perfectly correct in this regard and indeed for the additional reasons adverted to above (and later herein) although apparently not having being referred to the relevant De Lange matter (supra) in the Constitutional Court.

[63]       It is to be noted that Appellant disavows reliance on the defective record issue and accordingly it is unnecessary to deal therewith.

PARALLEL / MULTIPLICITY OF PROCEEDINGS

[64]       The only potential point of merit in the Appellant’s argument, in my view, is the parallel proceedings issue – the evidence will somewhat potentially overlap, to which Appellant willingly agreed and proceeded accordingly to an advanced stage.  Whilst this could conceivably lead to conflicting decisions on certain issues this is not necessarily so and ceases in my view to be a compelling issue (if it ever was) this far down the road. 

[65]       In essence, in the Strata proceedings, it claims an extension of time, which Pro-Khaya defends, alleging the failure to adhere to contractual procedure.

[66]       The Pro-Khaya counterclaim (and in my view part of the defence) hinges on the allegation that a wrong flange/joining adapter was used – a design error and the lack of sufficient expert knowledge, or so it is alleged – Strata also being said to have failed to appreciate the shrinkage properties of the pipes.

[67]       This all clearly requires considerable expert knowledge and is matter tailor made for expert arbitration.

[68]       Pro-Khaya’s claim against JDM however is on a somewhat different basis which whilst very widely pleaded claims:

[68.1]   Remedial costs incurred “(Para 108 of Statement of Claim (R1 995 652.34) arising from its failure to install”, “non conforming material (HDPE pipework)”, and failing to discharge its design responsibility for the coupler approval, amongst other things.

[68.2]   Delay damages in many Millions of Rands (Penalties in fact for delayed completion) arising from JDM’s failure to “cut back the HDPE pipe timeously delaying the remedial works and completion of the fire reticulation works”.

[69]       It is apparent then that the major part of the claim against JDM in fact does not overlap with the allegations against Strata and certainly not to the extent contended for by Appellant. 

CONCLUSION

[70]       The “onus” to demonstrate “good cause” in such an Application is not easily met.

[71]       This means no more nor less that Pro-Khaya has to make out what has been referred to as a “persuasive case” [24]

[72]       Our Courts, correctly, have not defined precisely what circumstances constitute a “persuasive case” (otherwise put “a very strong case”)[25].

[73]       Here both arbitration agreements are valid and the contrary has not been contended.

[74]       This requires a consideration of the merits of each matter.

[75]       This must overall result in a just and equitable outcome.

[76]       A party will not be held to an arbitration agreement that will result in an unfair or unreasonable outcome[26].   The Courts will however hesitate to set aside an arbitration agreement absent misconduct or irregularity (not present here) unless “a truly compelling reason exists” [27].

[77]       In the Constitutional era good cause embraces an enquiry into whether the arbitration agreement, if implemented, would “unjustifiably” diminish or limit protections afforded by the Constitution[28].  This enquiry appears to have been ignored by the parties entirely in their heads and factual allegations, probably arising from the failure to appreciate the significance of the Constitutional Court’s judgment in De Lange (supra), to which neither referred.

[78]       Importantly, absent the infringement of Constitutional norms, Courts will hesitate to set aside an arbitration agreement untainted by misconduct or irregularity unless a “truly compelling reason exists” [29].

[79]       In this matter:

[79.1]       There are no allegations of fraud, misconduct or irregularity.

[79.2]       The arbitration agreements are valid.

[79.3]       The credibility issues are relatively limited.

[79.4]       The main issues are technical and well suited to expert arbitration.

[79.5]       The Appellant first raised this issue at a late stage against both Respondents, but especially against Strata, after evidence has been led and an interim ruling given.

[79.6]       The Strata arbitration seems to be poised for completion on the counterclaim and be ripe for an award to be made by Second Respondent in all respects.

[79.7]       Whilst there is certainly some overlap of issues between the two arbitrations, they are by no means on all fours and there are separate issues which are not common.

[79.8]       There is, in my view, no reason to conclude (nor was it argued) that the arbitration agreements, if implemented, would unjustifiably diminish or limit the relevant protections afforded by the Constitution.

[79.9]       There is lacking any truly compelling reason to set aside either or both arbitration agreements or such as to warrant interference with the legitimate goals of private arbitration.

[79.10]     To uphold the arbitration agreements does not, in my view, render the outcome in these specific circumstances in any way unjust or inequitable. 

RESULT

[80]       There is no merit thus in the Appeal, just cause as required not being demonstrated. 

[81]       In the result, the following order issues:

The appeal is dismissed with costs.

__________________________

M.J. LOWE

JUDGE OF THE HIGH COURT

JAJI, J:

I agree.

_________________________

N.P. JAJI

JUDGE OF THE HIGH COURT

POTGIETER, AJ:

I agree.

_________________________

D. POTGIETER

JUDGE OF THE HIGH COURT (ACTING)

Appearances:

Obo the Appellant:            Adv A Beyleveld SC and Adv T Rossi

Instructed by:                    Friedman Scheckter, Port Elizabeth

Obo First Respondent:      Adv E Janse van Rensburg

Instructed by:                        Johann Viljoen & Associates c/o Wikus Van Rensburg Attorneys, Port Elizabeth c/o De Jager & Lorden, Grahamstown

Obo Second Respondent: Abides the decision of the Court

Obo Third Respondent:      Abides the decision of the Court

Obo Fourth Respondent:   Abides the decision of the Court

[1] Plascon-Evans Paints (TVL) Ltd v Van Riebeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 A 634 – 635;  National Director of Public Prosecutions v Zuma 2009 (2) SA 279 SCA [26]

[2] Harmse (Butterworths) B6.45

[3] Media 24 Books (Pty) Ltd v Oxford University Press Southern Africa (Pty) Ltd 2017 (2) SA 1 (SCA)

[4] Airports Company South Africa Soc Ltd v Airports Bookshops (Pty) Ltd t/a Exclusive Books [2016] 4 All SA 665 (SCA).

[5] Butterworths B6.45

[6] Frank v Ohlsson’s Cape Breweries Ltd 1924 AD 289 294;  Plascon-Evans 634-635

[7] Petersen v Cuthbert & Co Ltd 1945 AD 420 428.  A hollow denial or a detailed but fanciful and untenable version does not create a dispute of fact:  Truth Verification Testing Centre CC v PSE Truth Detection Centre CC 1998 (2) SA 689 (W) 698;  Rosen v Ekon [2000] 3 All SA 23 (W) 39;  Ripoll-Dausa v Middleton NO [2005] 2 All SA 83 (C), 2005 (3) SA 141 (C).

[8] Rothman v Curr Vivier Inc 1997 (4) SA 540 (C) 551;  Peterson v Cuthbert & Co Ltd supra 429; President of the Republic of South Africa v South African Rugby Football Union 2000 (1) SA 1 (CC) pars 234-239.  It has variously been called a “genuine” or “bona fide” dispute (“’n werklike of direkte feitegeskil”:  Van der Merwe v Meyer 1971 (3) SA 22 (A) 26G) but the meanings are the same.  Whether the converse of a “real” dispute is a “mala fide” dispute of fact as suggested in Von Steen v Von Steen 1984 (2) SA 203 (T) is open to doubt.  Speculation does not create a real dispute of fact:  Standard Credit Corporation Ltd v Smyth 1991 (3) SA 179 (W);  Governing Body of Hoërskool Fochville and Another v Centre for Child Law;  In re:  Governing Body of Hoërskool Fochville and Others (Greenside High School Governing Body as amicus curiae) [2014] 4 All SA 204 (GJ).  

[9] Petersen v Cuthbert & Co Ltd supra 428;  Administrator, Transvaal v Theletsane [1990] ZASCA 156; 1991 (2) SA 192 (A) 197;  G v Superintendent, Groote Schuur Hospital 1993 (2) SA 255 (C).

[10] Ismail v Durban City Council 1973 (2) SA 362 (N) 374A-B;  Du Preez v NWK Ltd [2005] 3 All SA 551 (B)

[11] Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949 (3) SA 1155 (T) 1162;  Ter Beek v United Resources CC 1997 (3) SA 315 (C) 329D-E.

[12] Metallurgical & Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W) 391;  Sera v De Wet [1974] All SA 295 (T); 1974 (2) SA 645 (T) 649-650;  Government of RSA v Midkon (Pty) Ltd [1984] 2 All SA 273 (T);  1984 (3) SA 552 (T) 555;  Altech Data (Pty) Ltd v MB Technologies (Pty) Ltd [1998] JOL 2285 (W); 1998 (3) SA 748 (W) 752I-754J.  See also Butler and Finsen Arbitration in SA 65-67 and Christie (1994) 111 SALJ 553-556. 

Sera v De wet 1974 (2) SA 645 (T) 649E-F;  Rhodesian Railways Ltd v Mackintosh 1932 AD 359 375; Airports Company SA Ltd v ISO Leisure OR Tambo (Pty) Ltd 2011 (4) SA 642 (GSJ) par 71;  Halifax Overseas Freighters Ltd v Rasno Exports, Tecknoprominport & Polskie Linie Oceanicze PPW 1958 (2) Lloyd’s Rep 146.  Cf Russell v Russell 1880 14 ChD 471 where Jessel MR said that the cases in which the discretion against arbitration should be exercised were few and exceptional;  Universities van Stellenbosch v JA Louw (Edms) Bpk [1983] 2 All SA 415 (A);  1983 (4) SA 321 (A) 333;  Nick’s Fishmonger Holdings (Pty) Ltd v De Sousa [2003] JOL 10629 (SE);  2003 (2) SA 278 (SE) 282C-D.

Schietekat v Naumov 1936 (1) PH A26 (C);  Lancaster v Wallace [1975] 1 All SA 155 (W);  1975 (1) SA 844 (W) 847. 

[13] Welihockyj and Others v Advtech Ltd and Others 2003 (6) SA 737 (W).

[14] Rawstorne and Another v Hodgen and Another 2002 (3) SA 433 (W).

[15] Sera v De Wet supra.

[16] De Lange v Methodist Church and Another 2016 (2) SA 1 (CC)   (This decision was not referred to before the Court a quo or for reason that escapes me before this Court, in my view, a fundamental omission.

[17] Airport Company SA Ltd v ISO Leisure OR Tambo (Pty) Ltd  supra [74]Metallurgical (supra) 393G-394B;  Universiteit van Stellenbosch v JA Louw (Edms) Bpk (supra) 339-342.

[18] 1971 (2) SA 388 (T).

[19] Metallurgical and Commercial Consultants (supra) 391E-H.

[20] 756C-D

[21] Welihockyj (supra)

[22] At 333B-334B and 335H-336E.

[23] At 652E-G and 653G-654F

[24] De Lange (supra) [36]

[25] De Lange (supra) [36];  Universiteit van Stellenbosch 334A.

[26] De Lange (supra) [37]

[27] De Lange (supra) [37]

[28] De Lange (supra) [37]

[29] De Lange (supra) [37], Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews and Others 2009 (4) SA 529 (CC) paras [235-236]