---

 

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN THE HIGH COURT OF SOUTH AFRICA

(FREE STATE DIVISION, BLOEMFONTEIN)

                                                                             Case Number: A196/2017

In the matter between:

BODY CORPORATE OF VIA QUINTA                                                             Applicant

and

RUDOLPH JOHANNES VAN DER WESTHUIZEN N.O.             1^st Respondent

ENGELA SUSANNA MAGDALENA VAN DER
WESTHUIZEN N.O.                                                                                     2^nd Respondent

 

CORAM:                           REINDERS, J et MURRAY, AJ

HEARD ON:                           9 OCTOBER 2017

JUDGMENT BY:                   MURRAY, AJ

DELIVERED ON:                 16 NOVEMBER 2017

[1] This is an appeal against the judgment of Mr PJR Barnard (“the court a quo”) delivered in case no. 17820/2012 in the Magistrates’ Court for the District of Bloemfontein on 16 March 2017. 

[2] The Appellant (the Plaintiff in the main action) is the Body Corporate of the Via Quinta Sectional Title Scheme No SS 3/96 (“Via Quinta”) situated at [...] S., A., Bloemfontein. The Respondents (the Defendants in the main action) are the trustees of the R J van der Westhuizen Family Trust which presumably owns Unit [...] in the Via Quinta Scheme. 

[3] On 23 April 2012 Matsepes Inc on behalf of the Via Quinta Body Corporate claimed from the Respondents payment of R17 833.00, allegedly for a special contribution for December 2011 to March 2012, and R350.00 in administration costs.   The Respondents failed and, on their own admission, refused to pay the said amounts.  

[4] On 13 June 2012 the Body Corporate issued summons against the Respondents in the Bloemfontein District Court for payment of the amount of R18 183.00 plus interest at the rate of 15,5% per annum from date of judgment.   The information regarding the claim was set out in Annexure A to the summons.

[5] The Respondents defended the action and raised a Special Plea in which they prayed, inter alia, for the referral of the dispute between the parties to arbitration in terms of Rule 71(1) of the Management Rules issued in terms of the Sectional Titles Act, Act 95 of 1986.

[6] The Applicant denied that there was a dispute which could be referred to arbitration and maintained that the court a quo should adjudicate the matter itself.

[7] In the body of their Plea the Respondents admitted that the Body Corporate was entitled to levy contributions on the owners.   They denied, however, that the Body Corporate was allowed to do so in the manner in which it was done in Annexure A.  They averred:

7.1    That the prescribed procedure in the Via Quinta Rules had not been followed in determining the contribution, since a smaller percentage of owners than that required by the Rules, had been present during the voting; and

7.2    That Annexure A was vague and embarrassing in that it contained no indication of the purpose of the special contribution, or of the reasons why the Respondents were being held liable for the administration costs.

[8] On 16 March 2015 default judgment for payment of the amount of R18 183.00 plus interest was granted against the Respondents in their absence.  The Sheriff attached some of their movable assets in lieu of payment. 

[9] On 19 June 2015 that judgment was set aside.  The matter was again set down for trial in the court a quo for 27 February 2017, when only the Special Plea was heard.  That resulted in the 16 March 2017 judgment which is the subject of this appeal.   

[10] The court a quo ordered that the matter be referred to arbitration as meant in Rule 71, proclaimed in terms of s 55 of the Sectional Titles Act, Act 95 of 1986, read with para 6.1 of the Obligations and Rules of Conduct of the Via Quinta Body Corporate, and ordered, furthermore, that the proceedings in the Magistrates’ Court be stayed pending finalisation of the arbitration proceedings.

[11] The appeal is directed at the court a quo’s referral of the matter to arbitration.  The Appellant averred that neither a summons issued by the Body Corporate against one of its members for payment of money, nor a plea by such member disputing such claim, constituted a referable dispute.   In its view the Respondents’ refusal to pay the arrears did not constitute an arbitrable dispute.

[12] It averred, furthermore, that a referable dispute would have existed only if the Respondents, in accordance with the provisions of Rule 71, had declared a dispute in writing and delivered same to the Appellant before the latter issued the summons.  According to the Appellant, since the summons had not been preceded by such declaration of a dispute, there was no dispute to refer to arbitration. 

The Legislative Framework

[13] When the action in contention was instituted in the court a quo in 2012, the Sectional Titles Act, Act 95 of 1986 (“the Act”), was still in force.   In terms of s 35(2) thereof, rules provided for the control, management, administration, use and enjoyment of the sections and the common property in such Sectional Title Schemes.  The said rules consisted of management rules (Annexure 8 to the Regulations) and conduct rules (Annexure 9 to the Regulations).  

[14] On 7 October 2016 the Act, including s 35 thereof which provided for the management and conduct rules governing Sectional Title Schemes, was repealed by the Sectional Title Schemes Management Act, Act 8 of 2011[1] (“the STSMA”).   Also on 7 October 2016 the Community Schemes Ombud Service Act, Act 9 of 2011[2] (“the CSOSA”), and the Regulations on the Community Schemes Ombud Service[3] made in terms thereof, were promulgated to provide a dispute resolution mechanism for Sectional Title Schemes.

[15] Sections 38 to 57 of the CSOSA and Regulations 19, 20 and 21 of the CSOSA Regulations created the said dispute resolution mechanism.   They make specific provision for applications for the resolution of disputes to be made to the Ombud who then refers them either to conciliation or, if that fails, to an adjudicator.  In terms of the CSOSA the Body Corporate has a discretion to either enforce payment of levies or contributions through the Ombud, or in terms of its common law right in any court of law[4] against a defaulting owner for the recovery of arrear levies.   Any action already instituted before the new mechanism was introduced can still be continued against the defaulting owner in the court concerned.[5]

[16] In the event of insufficient provision for maintenance in the budget for the administrative or the reserve fund, any owner in a Sectional Title Scheme may now approach the Ombud service for an order declaring that the contribution levied on the owners was “incorrectly determined” and for an order for the “adjustment of the contribution” to a “correct or reasonable amount.”[6]

[17] If the claim for arrears levies or contributions is not disputed, for example if an owner simply ignores a demand for payment or simply refuses to pay, without disputing the amount of the claim or the proper determination of the levy,  the Body Corporate can institute legal action in court to recover the arrear levies from the owner. 

[18] If, on the other hand, the amount of the levy is disputed because it was not properly determined and this dispute is raised after the defaulter had received a demand, the appropriate forum for recovery of the levies would be the regional office of the Ombud service.[7]  An adjudicator would then be appointed to investigate the matter and his order would be enforceable as a judgment of the magistrates’ court or the high court with jurisdiction.   The Body Corporate would then need to execute the order in the court concerned to recover the levies is the order so records.  

[19] The CSOSA procedure therefore differs from the way disputes were handled under the 1986 Act in that an Ombud now acts as intermediary to manage, oversee and ensure the resolution of the dispute either by way of conciliation or by way of adjudication, whereas Rule 71 of the ‘old’ Act required to parties to try to resolve the dispute themselves, and if that did not succeed, to refer it to arbitration.   

[20] The instant dispute arose and was first reported in 2012, under the 1986 Act, and the default judgment was granted and set aside in 2015 while the said Act was still in effect.   The judgment which is now appealed against, however, was decided in March 2017 when the STSMA and CSOSA had already been promulgated, and new Regulations and Rules were introduced to regulate the adjudication of disputes regarding Sectional Title Schemes.

[21] There is no indication that the repealing Act, Act 8 of 2011, or Act 9 of 2011, were intended to have retroactive effect, nor is there any indication that the new Rules have already been adopted by the Via Quinta Body Corporate, and that the Registrar has been notified of, or that the Ombud has approved any adoption, amendment or repeal prior to the judgment being rendered. 

[22] Generally the rule is that proceedings commenced under the repealed law will be carried on if by such proceedings a material right or interest has been conferred.[8]   In the instant case the right to demand that the dispute be referred to arbitration was conferred on the Applicants by the 1986 Act and its Regulations. There is no clear intent on the part of the legislature to be deduced from the repealing law that all actions under the repealed law cease to be operative and have legal effect, either.[9] 

[23] Apart from that, to insist on adjudication of the dispute under the new Acts and Regulations at this stage of the proceedings, would in my view negate the stated purpose of the referral to arbitration under the 1986 Act, namely to obtain a speedy and cost-effective adjudication of the dispute.   Instead of being referred straight to arbitration, it would, under the 2011 Acts, have to referred to conciliation first, then, if it is not resolved, to the regional Ombud, then to an adjudicator who in terms of CSOSA needs to be paid by the parties, and then back to the court for enforcement of his/her decision. 

[24] Therefore in my view the matter under appeal should still be finalised in accordance with the provisions of the now repealed 1986 Act, Regulations and Management Rules in accordance with the  Court order of 16 March 2017.  

[25] Mr van Schalkwyk argued on behalf of the Respondents, with reference to Body Corporate of Greenacres v Greenacres Unit 17 CC and Another[10] that referral to arbitration was compulsory and that the court a quo therefore had no other option than to stay the court proceedings and to refer the dispute for adjudication by way of arbitration.  

[26] Mr Lubbe on behalf of the Via Quinta Body Corporate, on the other hand, averred that there was no dispute which could be referred to arbitration and that, therefore, the court a quo had no other option than to adjudicate the Body Corporate’s claim itself.  

[27] He maintained that the Respondents’ refusal to pay the contribution did not amount to a dispute, and averred, furthermore, that because the Respondents did not declare a dispute and deliver such in writing to the Body Corporate prior to the issuing of the summons, but only denied liability in their Plea, there was no dispute to refer to arbitration.

[28] The court a quo relied on Greenacres, to find, correctly so, that in order for Rule 71(1) to operate, there had to be a dispute, and that there was no reason to exclude a dispute regarding the liability of an owner in a sectional title scheme for payment of arrears levies from the operation of the Rule.  It therefore found that a dispute did exist because the Respondents in their Plea set out the grounds for their failure and refusal to pay.

[29] In Greenacres the Court was indeed still of the view that arbitration was compulsory in terms of Rule 71[11]. Until then courts[12] had regarded arbitration proceedings in terms of the Sectional Title Act, Act 95 of 1986, (“the Act”), as a form of compulsory statutory arbitration purportedly because it was not based on an agreement between the parties, but was subject to a provision in the statute which compelled the parties to take their dispute to arbitration.

[30] For that purpose the Act (Act 95/1986) was regarded as an arbitration agreement to which the Arbitration Act applied except in so far as it was inconsistent with the said Act.   Because the Act was interpreted to make arbitration compulsory, the court was not regarded to have a discretionary power to exclude arbitration. [13] This was deduced from the wording of Sections 35(1) and 35(2) of the Act.[14]   Rule 71 provided, specifically, that any arbitrable dispute must be determined in terms of Rule 71 and provided that, if the dispute was not resolved within 14 days after the affected parties had been notified thereof, the dispute ‘shall be’ referred to arbitration.[15]

[31] A year later, however, Cloete JA in PCL Consulting (Pty) Ltd t/a Phillips Consulting SA v Tresso Trading 119 (Pty) Ltd[16] held that the mere presence of an arbitration agreement, did not mean that court proceedings were incompetent.  He stated, furthermore, that, if a party instituted the court proceedings despite the existence of an arbitration clause, as the Appellant in the instant case did, the opposing party had two options:  (i) either to apply for a stay of the proceedings in terms of s 6 of the Arbitration Act, Act 42 of 1965; or (ii) to pray in a Special dilatory Plea for a stay of the proceedings pending the determination of the dispute by arbitration.   The effect of such Special Plea is dilatory, that is, it stays the action pending arbitration, rather than declinatory, that is, dismiss the action altogether.[17] 

[32] In 2013 the Supreme Court of Appeal in Body Corporate of the Pinewood Park Scheme No. 202 v Dellis (Pty) Ltd[18] introduced a new perception of the nature of arbitration proceedings.  Contrary to the views expressed in Greenacres, the Court decided that the arbitration proceedings in terms of the Sectional Titles Act was not a form of statutory arbitration.  It held the management rules in a sectional title scheme to be of a contractual or consensual nature, based on an agreement of the purchasers into the sectional title scheme to abide by the rules of the scheme, and found that a court did have a discretion whether to refer the matter to arbitration or to decide the dispute itself.  This discretion not to enforce an arbitration agreement, on good cause shown, the court derives from ss 3 and 6 of the Arbitration Act, Act 42 of 1965, and from the common law.   

[33] The Court in Pinewood Park furthermore summarised the legislative framework relating to the management and control of sectional title schemes in terms of s 35(1) and (2) of the Act and regulations 30(1) and (3) as follows:

“rules control and manage schemes from the date of establishment of the body corporate;  they provide for the control, management and administration, use and enjoyment of the sections and the common property;  they comprise, besides conduct rules, management rules which may be amended or repealed to the extent prescribed by regulation.”

[34] Mpati P[19] pointed out[20] that the Act and the Regulations made under it do not prescribe a procedure for dispute resolution, but that the Act simply provides that the sectional title scheme must be controlled and managed by means of rules which may or may not provide for the resolution of disputes.[21]  The Court determined that the Regulations provided that the management rules may be substituted, added to, amended or withdrawn by the developer and added to, amended or repealed by a unanimous resolution of the body corporate, and concluded that:[22]

“The fact that the rules may be jettisoned in part by the developer and in toto, and others substituted for them, by unanimous resolution of a body corporate, indicates clearly, in my view, that the Legislature intended the rules to be of a contractual nature.”

[35] The Court found support for this view in the construction of the status and nature of the rules by Spoelstra J in Wiljay Investments (Pty) Ltd v Body Corporate, Bryanston Crescent and Another[23] with regard to the conduct rules of Scheduled 2 of the old Sectional Titles Act 66 of 1971, namely that:

“the rules, read with the provisions of the Act, contain a constitution of the domestic statutes of the body corporate and could in this sense properly be construed as containing the terms of an agreement between the owners inter se and between owners on the one hand and the body corporate on the other hand.”[24] [25]

[36] The Court accepted, furthermore, that this statement was equally valid in respect of the management rules made under the Regulations read with the provisions of s 35 of the Act.  Mpati P reasoned that it was logical that a purchaser who purchases a unit in a sectional title scheme after a sectional title register had been opened, would be deemed to have consented or agreed to be bound by the existing rules relating to that scheme and to future changes to the rules introduced by the unanimous resolution of the body corporate concerned.[26]

[37] The Court therefore concluded that the arbitration procedure provided in management Rule 71 was consensual[27] and accordingly held that the provisions of the Sectional Titles Act and the Regulations did not prescribe a compulsory arbitration procedure for inclusion in the rules.[28]   

[38] It held, furthermore, that the Regulations in terms of the 1986 Act did not prescribe a specific dispute resolution procedure.  Accordingly, the parties wishing to have a dispute resolved in terms of Rule 71 had two options: either to have the dispute decided by arbitration, or to have it decided by the trial court. 

[39] In consensual arbitrations, the effect of an arbitration agreement is not to exclude the jurisdiction of the courts in respect of the dispute to which the agreement pertains.[29]  The court retains its common-law power to stay the court action until the dispute has been adjudicated by arbitration.  

[40] Even if a dispute is covered by a valid arbitration agreement, its submission to arbitration is not an absolute requirement.  A party to the agreement may prefer to have the dispute determined by the court, like the Appellant did in this case.   He may issue summons and unless his opponent objects, the matter will proceed before the court as if there had been no arbitration agreement.  

[41] If a claim is undefended, there is indeed nothing for the arbitrator to determine. The onus of showing that there is indeed a dispute, is on the party who files a Special Plea. The party wishing to avoid arbitration then bears the onus of persuading the court to exercise its discretion against staying the action, but such onus is one “which is not easily discharged”, wherefore that party needs to make out a “very strong case”.  That is because he is seeking to deprive the other party of the advantage of arbitration to which the latter is entitled. [30]

[42] The Appellant in this case did not reply and did not in its summons or in reply allege any facts or cogent reasons why the Appellant’s claim should not be referred to arbitration.  The only reasons proffered for refusing the demand for referral to arbitration, are the averments that there is no dispute to refer, that the case has been pending since 2012 and should finalised, and that the Court had a discretion to refuse referral and to hear the matter itself. 

[43] I respectfully agree with Cloete JA[31] that there is no reason why a dispute about the liability of an owner to pay levies should be excluded from the operation of Rule 71, i.e. from adjudication by arbitration.   In my view, therefore, the court a quo was correct to hold that there was no reason to find that the present dispute about the Respondents’ liability to pay an arrears contribution was not susceptible to arbitration[32].

[44] I do not find Mr Lubbe’s argument persuasive that there was no dispute because the Respondents did not in accordance with Rule 71 declare and deliver a written dispute to the Body Corporate, the Trustees and the Management Agent prior to the issuing of the summons. 

[45] First of all, nowhere in Rule 71 is it required that a dispute be declared before a summons is issued.  A dispute can arise at any time, even during an action.  As Cloete JA said in Greenacres[33], it frequently happens that one of the parties raises a dispute in which instance the court proceedings are stayed for the dispute to be referred to arbitration. 

[46] While Section 6 of the Arbitration Act does appear to require an application for a stay of the court proceedings to be filed after the notice of intention to defend but before the plea is filed and before any further step in the proceedings has been taken,[34] it has been held that [35] the wording of s 6 is permissive and not compulsory, and that the party wishing to invoke the right to have the dispute resolved by arbitration can either file a special plea or raise it as a defence in an affidavit. 

[47] I agree with the court a quo, furthermore, that the Plea created a dispute about the Respondents’ liability for the Special Contribution which was allegedly not validly determined, and which dispute was arbitrable.   The very purpose of a denial in a plea is to place in dispute the averments made in the particulars of claim.

[48] As Plewman JA said in Telecall (Pty) Ltd v Logan[36]: for a reference to arbitration there must exist “a dispute which is capable of proper formulation at the time when an arbitrator is to be appointed”.   The requirement, therefore, is not that the dispute must have been formulated and served upon the Body Corporate or the Trustees before summons was issued, but rather that, at the time that the demand for arbitration is to be made, there must be a dispute which is capable of being properly formulated. 

[49] In the present case, as the court a quo indicated, the Respondents did create a dispute by making the necessary factual averments in the Plea[37] as to why they disputed the Appellant’s claim that they were liable for the Special Contribution, and the administrative costs, namely:    

1)      That the contributions as contained in Annexure “A” may not be levied;

2)      That for the vote on the levy the prescribed procedure as contained in the rules had not been complied with; and

3)      That Annexure “A” was vague and embarrassing.

[50] Theirs was therefore not merely ‘an expression of dissatisfaction not founded upon competing contentions’, or a mere ‘failure to perform upon demand and pay in terms of a contract’ which does not without more imply that there is a dispute as to liability’[38] or a bare denial as averred which would according to Plewman JA not have constituted a dispute[39].   

[51] When the Respondents demanded referral of the issue to arbitration, there was clearly a dispute between them and the Appellant which had manifested itself in the Pleadings.  The nature of the dispute did not place it beyond the arbitrator’s powers, and it was capable of being properly formulated. 

[52] It is trite that a court should not be overly formalistic in its approach and give precedence to form over substance.  The whole purpose of Rule 71 is to provide an expeditious and inexpensive method to determine disputes and it gives any of the parties to the dispute the option to ‘demand’ (i.e. not just request) that the dispute be resolved by arbitration.  That is what the Respondents in this matter has done.

[53] There is no substance, therefore, in the Appellant’s argument that because the Respondents did not formulate and write down the dispute and present it to the Body Corporate, the Trustees, the Management Agent and their fellow members as described in Rule 71, there was no dispute.

[54] In my view the Appellant in the instant case has offered only a few very flimsy reasons for avoiding arbitration and therefore has not made out a case, let alone a ‘very strong case’, to deprive the Respondents of their right to have the dispute resolved by arbitration.  It, accordingly, did not meet the strict requirement of having shown good cause for the Court to refuse referral to arbitration.   

[55] To avoid its judgment being susceptible to being overturned on appeal, the Court a quo needed to exercise its discretion judicially upon consideration of the particular facts of the matter.

[56] I agree with the court a quo that there is indeed a dispute which can be adjudicated by an arbitrator, in view of the Respondents’ averments that the special contribution was not determined in accordance with the rules, and by implication therefore, that it was not valid and enforceable. 

[57] The Court a quo explicitly took into consideration: the history of the matter as appears from the pleadings, noting specifically that the objectives of arbitration could still be reached regarding cost-effective adjudication; that the alleged absence of the required number of owners present when the contribution was decided could render the decision invalid; and that the purpose of the contribution was not explained.   It also took into consideration the terms of paragraph 6.1 of the Duties and Conduct Rules of Via Quinta which provided for referral to either the Registrar of Deeds where the Scheme is registered if the Trustees were involved or to arbitration.    

[58] The court a quo correctly relied on the current legal position regarding the nature of the rules as set out in Pinewood Park and correctly held that it did have a discretion to refer the matter to arbitration rather than to adjudicate the dispute itself.   I find no reason to hold that it erred in doing so.   

[59] In the absence of good cause shown by the Appellant why the dispute should not be referred to arbitration and in view thereof that the court a quo properly considered the nature of the dispute and the surrounding circumstances, and relied on the correct position in law, the latter cannot be faulted for having exercised its discretion to stay the court proceedings and refer the matter to arbitration.

[60] A court of appeal cannot simply interfere with a judgment without good reason.  In a case like this, the court of appeal will only interfere with the exercise of a discretion by the lower court where it can be shown that:

“… the lower court had not exercised its discretion judicially, or that it had been influenced by wrong principles or a misdirection on the facts, or that it had reached a decision which … could not reasonably have been made by a court properly directing itself to the relevant facts and principles.”[40]

[62] I cannot find that the court a quo failed to exercise its discretion judicially by failing to apply its mind or misdirecting itself as to the facts or the position in law, nor that its judgment could not reasonably have been made by a court properly directing itself to the relevant facts and principles.   The appeal therefore has to fail.

[63] The Respondents did not oppose the appeal, for lack of finances, and filed a notice to abide by this Court’s decision.  It was submitted on behalf of the Appellant that costs be allowed to stand over for determination in accordance with the outcome on the merits.

[64] WHEREFORE I make the following order:

1.     The appeal is dismissed.

2.     The judgment of the court a quo in case 17820/2012 is confirmed and the matter is referred to arbitration as meant in Rule 71 proclaimed in terms of Section 55 of Act 95 of 1986, read with Paragraph 6.1 of the Obligations and Conduct Rules of the Via Quinta Legal Persona.

3.     The proceedings in the Magistrates’ Court are stayed pending the outcome of the arbitration.

4.     Costs are to stand over pending the outcome on the merits.

________________

H. MURRAY, AJ

I concur.

                                                                                      _______________

                                                                                      C. REINDERS, J

 

On behalf of the Appellant:                        Adv E Lubbe

                                                                        Instructed by:

Matsepes Inc

                                                                        BLOEMFONTEIN

 

On behalf of the Respondents:                 JP Van Schalkwyk

                                                                        Van Schalkwyk & Partners

                                                                        BLOEMFONTEIN

---

---