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/SG

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

DATE: 11/02/2008

CASE NO: 42794/2007

REPORTABLE

In the matter between:

REBAH CONSTRUCTION CC APPLICANT

And

RENKIE BUILDING CONSTRUCTION CC RESPONDENT

JUDGMENT

SERITI, J

A. Introduction

1. This matter came to court by way of motion.

In the notice of motion the applicant is seeking an order that the default arbitration award made by Dr Rudolph and delivered to the parties on 30 August 2007 be made an order of court.

2. The respondent is opposing the application and also launched a counter application in terms of which it is praying for an order setting aside the default award made by the arbitrator on 30 August 2007.

Respondent is also praying for an order that the respondent be allowed to file its statement of defence within ten days after the default award is set aside.

B. Background Facts

3. On 8 April 2006 and at Louis Trichardt the applicant and the respondent entered into a written joint venture agreement, in terms whereof the applicant was appointed by the respondent to assist the latter with the project and financial management and construction on a contract awarded to the respondent for the re-gravelling of a certain road.

4. The joint venture agreement signed by the parties stipulates in paragraph 8 thereof how disputes should be resolved. It reads partly as follows:

“Dispute

8.1 A dispute between the parties relating to any matter arising out of this agreement or the interpretation thereof shall be referred to arbitration …

8.2 When arbitration proceedings are held it shall not be necessary to observe or carry out the usual formalities or procedures.

8.3 Arbitration shall be held and with a view to each being completed within ten working days after it is demanded. …”

5. The parties, after the signing of the joint venture agreement mentioned above, carried out certain functions in accordance with the construction contract awarded to the respondent.

A dispute arose between the parties and same was referred to an arbitrator, Dr Rudolp.

6. On 20 July 2007 the parties held a pre arbitration meeting, at which meeting the arbitrator and the parties’ legal representatives were present.

At the said meeting, inter alia, the following was recorded:

“3. EXCHANGE AND DELIVERY OF

PLEADINGS

3.1 The Applicant will serve his pleadings on the arbitrator and the respondent on or before 3 August 2007;

3.2 The Respondent shall serve his answering pleadings with or without a counterclaim on 24 August 2007;

3.3 In the event of no counterclaim the pleadings will be deemed to be closed.

3.4 …

3.5 …

3.6 In the event of no counterclaim the hearing shall commence at 10:30 on 17 September 2007 and in the event of a counterclaim at 10:30 on 15 October 2007.

3.7 A pre arbitration meeting between the parties shall take place on 10 September 2007 at a time and place to be arranged between the parties in the event of no counterclaim having been filed. In the event of a counterclaim the meeting shall take place on 8 October 2007 as arranged between the parties.”

7. The applicant’s statement of claim was telefaxed to the arbitrator and the respondent’s attorneys of record on 3 August 2007.

In the statement of claim, the applicant alleges that it performed in accordance with their agreement and from time to time, submitted claims for progress payment to the respondent. The respondent paid the first three payments but failed to pay the last payment in the amount of R1 703 335.39.

8. The respondent failed to deliver its statement of defence as stipulated in the pre arbitration minute. Same was supposed to be served on 24 August 2007.

9. In a letter dated 27 August 2007, addressed to the respondent’s attorneys, the applicant’s attorneys informed the respondent’s attorneys, inter alia, that the respondent has failed to deliver its statement of defence, and their instructions are to approach the arbitrator to grant default award against the respondent.

10. On the same date, the applicant’s attorney addressed a letter to the arbitrator, wherein they pointed out that the respondent has failed to deliver its statement of defence as agreed. The letter further states:

“Our instructions are to accordingly apply for default judgment herein.

Kindly advise what the procedure would be (will you require our client to give evidence) and what documentation you would require in this regard.”

11. On 29 August 2007, the respondent’s attorneys responded to the applicant’s attorneys’ letter, and in their letter stated, inter alia, that they are finalising their client’s answering papers which will be served in due course. On the same date the applicant telefaxed a letter to the arbitrator where they enclosed letter they received from respondent’s attorneys.

12. On 30 August 2007 the arbitrator made an award in the amount of R1 703 335.39 and telefaxed the said award to the applicant’s attorneys on the same day.

13. In the answering affidavit, the respondent disputes the fact that it owes the applicant any money. Respondent attached certain documents, namely copy of the contract payment cover sheet and summary payments on certificate document he obtained from the engineers who were assisting the municipality with, inter alia, verification and approval of payments.

14. The respondent further alleges that the said documents indicate that the applicant is not owed any money and in fact applicant was overpaid in the amount of R714 868.27. Respondent denies that the applicant is owed any money by the respondent or the municipality.

15. In the replying affidavit the applicant denied the respondent’s allegations and proceeds as follows:

“If the defence to the applicant’s claim is as simple as that suggested by the respondent, the question arises why the respondent has never raised that defence in any correspondence or in the response to the applicant’s statement of claim.”

16. Mr Radzilani, the sole member of the respondent in the answering affidavit further alleges that on 3 August 2007 he travelled with his attorney to Pretoria to consult with counsel, to enable counsel to draft the respondent’s statement of defence. It turned out that he does not have other relevant documents. Counsel also indicated that he wanted to consult with the engineers.

He had to travel to Nelspruit to collect the documents from the engineers on 29 August 2007. On 30 August 2007 he telefaxed the said documents to counsel.

17. The founding affidavit was deposed to by Mr Falk, the sole member of the applicant on 4 September 2007 and the notice of motion was issued on 7 September 2007.

The notice of motion was served on the respondent on 10 September 2007 at Louis Trichardt, and same was also served on the same date on the respondent’s attorneys of record at Louis Trichardt.

C. Findings

18. In the heads of argument and during oral argument the applicant’s counsel submitted that the court has no power to interfere with the award made by the arbitrator.

On the other hand, the respondent’s counsel submitted that the arbitrator had no power to grant default award or committed gross irregularity by granting default award six days after the respondent failed to file its statement of defence and without placing the respondent on terms and/or calling the respondent to file said statement of defence within a certain period.

19. Section 33 of the Arbitration Act 42 of 1965 provides that a court can set aside an award if:

(1) a member of the arbitration tribunal has misconducted himself in relation to his duties as arbitrator; or

(2) an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers; or

(3) an award has been improperly obtained.

The section further provides that the application to court for setting aside of the award made by the arbitrator must be made within six weeks after the publication of the award to the parties.

20. The Arbitration Act is silent on the question of the procedure to be followed in case a party fails to file statement of defence within the stipulated or agreed period. The arbitration agreement between the parties is also silent on that question.

21. The function of an arbitrator is not administrative but judicial in nature. See Total Support Management v Diversified Health System [2002] ZASCA 14; 2002 (4) SA 661 (SCA) at 673H J.

“Rules for the conduct of arbitration fifth edition August 2005” issued by the Association of Arbitrators (Southern Africa), in Rule 24, deals with instances where a party is in default of submitting its statement of defence.

Rule 24.2 and 24.3 thereof reads as follows:

“In the event of the Defendant not submitting its statement of defence within the time stipulated by the Arbitrator without showing good cause, the Arbitrator may issue a directive that the proceedings continue.

24.3 …

In the event that one party (the ‘defaulting party’) fails, neglects or refuses to comply with these Rules or to take part or further part in the arbitration, the Arbitrator may, after giving written notice to the defaulting party to remedy its default within a specified time which shall be reasonable in the circumstances, and the defaulting party fails to so remedy its default, proceed with the arbitration and make an award.”

I think I should mention that the abovementioned Rules applies only when the parties have agreed that they will apply in their arbitration.

The Arbitration Foundation of Southern Africa also has its own rules.

The said rules states that they apply in the case of AFSA, ADRASA and Property Association arbitrations.

Rule 9 thereof provides as follows:

“Should any party fail to co operate either way with the secretariat or with the ARBITRATOR with the result that in the view of the ARBITRATOR such default or omission prejudices the arbitration process then the ARBITRATOR can either –

9.1 give that party written notice that unless it remedies the default or omission within a given time, it will forfeit the right to continue to participate in the arbitration …”

22. The Canadian Foundation for Dispute Resolution produced what it calls Commercial Arbitration Rules.

Rule 36 thereof deals with “Default of a Party. Sub rule 3 thereof provides that:

“Where the respondent, without sufficient cause and after not less than 10 day’s notice from the Arbitration Tribunal, fails to communicate its statement of defence or any other process ordered within the required time, the Arbitration Tribunal may continue the arbitration with notice to the respondent and to the Foundation.”

23. The American Arbitration Association have also produced their own rules. Article 23 thereof deals with instances where a party defaults to file papers or attend a hearing.

It reads as follows:

“1. If a party fails to file a statement of defence within the time established by the tribunal without showing sufficient cause for such failure, as determined by the tribunal, the tribunal may proceed with the arbitration. …”

24. All the abovementioned rules requires that the defendant, who fails to submit his/her or its statement of defence within the agreed period, should be placed on terms or should be given an opportunity to remedy the default or give an explanation for the default.

25. The minutes of pre arbitration meeting held between the parties states that a party shall be deemed to have elected not to partake in the arbitration if the party fails to pay the deposit to cover the costs of arbitration. No clause deals with the failure to file statement of defence within the agreed period.

26. Rule 12(1)(b)(i) of the Magistrates Rules of Court provides that if the defendant fails to deliver a plea within a certain period, the plaintiff may call upon the defendant to file a plea within five days of receipt of the notice, failing which the defendant will be in default.

Rule 26 of the Uniform Rules of Court contains similar provisions.

27. It is clear from the Rules of Court that if a party fails to file a plea within the allowed time period, the plaintiff will serve a notice requiring the defendant to file the plea within certain numbers of days, failing which the defendant will be in default and the plaintiff will be entitled to apply for default judgment.

28. In this matter, the arbitrator granted default award against the respondent on 30 August 2007 despite the fact that on 29 August 2007 he received copy of correspondence from respondent’s attorneys wherein it is clearly stated the respondent’s answering papers are being finalised and will be served in due course.

29. Arbitrator granted an award against the respondent without affording respondent an opportunity to file its statement of defence and proceed with the arbitration.

An arbitrator, when carrying out his functions, the arbitrator must observe the requirements of natural justice and act in fairness to both parties. See Landmark Construction (PVT) Ltd v Tselentis 1972 1 SA (R) 435 at 438H; and LAWSA volume 1, paragraph 574 and authorities referred to in note 2 thereof.

By failing to provide the respondent with an opportunity of remedying its default, the arbitrator failed to adhere to a requirement of natural justice and to act in fairness towards all the parties.

30. Furthermore, the arbitrator, by granting default award took a step which was not anticipated by the parties. The arbitration agreement and the pre arbitration minutes, makes no provision for default award. The said two documents envisages a situation where an award can be made only after evidence, either documentary or viva voce was tendered.

31. In McKenzie NO v Basha 1951 (3) 783 (NPD) 786A, BROOME JP said “The Court may always interfere with an award which extends to matters not submitted …”

If an arbitrator deals with a question which is not within the terms of the submissions, the decision of the arbitrator is a nullity. The submissions made by the parties in this case, makes no provision for default awards and by granting default award without giving any notice to the respondent, the arbitrator acted outside the terms of reference.

On this ground alone, the court is entitled to set aside the award as the arbitrator has exceeded his powers as mentioned in section 33(1)(b) of the Arbitration Act supra.

32. Furthermore, by failing to place the respondent on terms, but instead immediately granted a default award, the arbitrator ignored the practice recognised by most if not all the local arbitrator’s associations, foreign arbitrator’s associations and our court rules of placing the defaulting party on terms. Such an action also defies the natural justice principles and it is such a gross irregularity as mentioned in section 33(1)(b) of the Arbitration Act supra, and this court will also be entitled to interfere with the award only on this ground.

33. In the heads of argument the applicant’s counsel submitted that the respondent has failed to bringing its application for setting aside the award of the arbitrator within six weeks after the publication of the award as required by section 32 of the Arbitration Act supra.

The award by the arbitrator was made on 30 August 2007, and the applicant’s application was issued on 7 September 2007. The respondent’s answering affidavit and counter application were served on 25 October 2007, which was almost eight weeks after the award was made.

Prior to serving its papers as mentioned above, the respondent had to prepare an answering affidavit after acquiring all the necessary documents.

34. Section 38 of the Arbitration Act supra provides that the court may, on good cause shown, extend any period of time fixed by or under this Act, whether such period has expired or not.

My view is that the facts of this case suggests that the court should extend the period of six weeks mentioned in section 32of the Arbitration Act supra and allow the respondent to challenge the award made herein.

The respondent was not unduly late to challenge the award made by the arbitrator and in the circumstances of this case, fairness dictates that the respondent should be granted an indulgence.

35. The applicant’s counsel also submitted that the respondent’s counter application is fatally flawed because of failure to join the arbitrator.

In Wholesale Provision Supplies CC v Exim International CC 1995 1 SA 150 (TPD) 158D-E, when dealing with joinder of a party, MAHOMED J said:

“These observations clearly show, in my view, that the rule which seeks to avoid orders which might affect third parties in proceedings between other parties is not simply a mechanical or technical rule which must ritualistically be applied regardless of the circumstances of the case.”

The question whether a party should have been joined or not depends on whether the order of the court will affect that party and to what extent. The party that has to be joined must have a direct or substantial interest in the case. See Tau v Minister of Agriculture and Land Affairs 2005 4 SA 212 (SCA) at paragraphs 64 and 65.

The arbitrator who is suppose to be an impartial person has no direct or substantial interest in the case.

Besides that, the facts of this case are such that failure to join him the arbitrator should not be fatal to the respondent’s case. There is no indication that the arbitrator would have produced other evidence which is not on record.

The last mentioned submission by the applicant’s counsel is without merit.

36. My view is that the respondent has made out a case for the prayers contained in the counter application. Of necessity it means that the applicant has failed to make out a case for the prayers contained in the notice of motion. The costs should follow the results.

Therefore, the court makes the following order:

(1) Application of the applicant is dismissed.

(2) The default award made by the arbitrator on 30 August 2007 is set aside and the matter is referred back to the arbitrator.

(3) The respondent must file its statement of defence within ten days from date of delivery of this judgment.

(4) The applicant must pay the costs of the respondent on a party and party scale.

W L SERITI

JUDGE OF THE HIGH COURT

42794/2007

Heard on: 01/02/2008

For the Applicant: Adv T P Krüger

Instructed by: Macrobert Inc, Pretoria

For the Respondent: Adv M H van Twisk

Instructed by: S.O. Ravele Attorneys, Pretoria

Date of Judgment: 11/02/2008

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