Mfoza Service Station (Pty) Limited v Engen Petroleum Limited and another

• Jurisdiction: http://justis.com/jurisdiction/166,South Africa
• Judge: Kollapen J, Madlanga J, Majiedt J, Mathopo J, Mhlantla J, Mlambo AJ, Theron J, Tshiqi J and Unterhalter AJ
• Judgment Date: 01 February 2023
• Citation: 2023 JDR 0760 (CC)
• Hearing Date: 17 May 2022
• Docket Number: CCT 167/21
• Court: Constitutional Court

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring):

Introduction

[1]

This application raises the question whether damages are available as a remedy under section 12B(4)(a) of the Petroleum Products Act [1] (PPA). Section 12B(4)(a) of the PPA empowers an arbitrator in proceedings brought under that provision to determine whether petroleum wholesalers or retailers have engaged in unfair or unreasonable contractual practices and, if so, to "make such award as he or she deems necessary to correct such practice".

Background

[2]

The applicant, Mfoza Service Station (Pty) Limited, conducts the business of a service station and entered into a lease agreement with the first respondent, Engen Petroleum Limited, a petroleum wholesaler which owns the premises from which Mfoza operated its petroleum retail business. The relationship between the parties was governed by the terms of the lease agreement, which has since come to an end. The provisions of section 12B of the PPA also find application as they introduce a standard of fairness and reasonableness into the contractual practices of the parties. Section 12B of the PPA provides:

"(1)

The Controller of Petroleum Products may on request by a licensed retailer alleging an unfair or unreasonable contractual practice by a licensed wholesaler, or vice versa, require, by notice in writing to the parties concerned, that the parties submit the matter to arbitration.

2023 JDR 0760 p4

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring)

(2)

An arbitration contemplated in subsection (1) shall be heard—

(a)

by an arbitrator chosen by the parties concerned; and

(b)

in accordance with the rules agreed between the parties.

(3)

If the parties fail to reach an agreement regarding the arbitrator, or the applicable rules, within 14 days of receipt of the notice contemplated in subsection (1)—

(a)

the Controller of Petroleum Products must upon notification of such failure, appoint a suitable person to act as arbitrator; and

(b)

the arbitrator must determine the applicable rules.

(4)

An arbitrator contemplated in subsection (2) or (3)—

(a)

shall determine whether the alleged contractual practices concerned are unfair or unreasonable and, if so, shall make such award as he or she deems necessary to correct such practice; and

(b)

shall determine whether the allegations giving rise to the arbitration were frivolous or capricious and, if so, shall make such award as he or she deems necessary to compensate any party affected by such allegations.

(5)

Any award made by an arbitrator contemplated in this section shall be final and binding upon the parties."

[3]

Following a dispute between the parties arising from allegations by Mfoza that it had suffered damages because Engen had breached the lease agreement, the Controller of Petroleum Products (Controller) directed that the parties submit their dispute to arbitration. The Controller concluded that the requirements for a referral to arbitration had been met and referred the matter to arbitration. All of the claims of Mfoza in the arbitration were pleaded as breach of contract claims, and the only relief sought was the payment of damages which related to alleged past loss of profit, loss of goodwill and loss of property value suffered as a result of the conduct of Engen.

[4]

There is nothing in Mfoza's statement of claim that refers to conduct that would constitute unfair or unreasonable contractual practices. The second respondent (Arbitrator) also understood that what was before him, requiring determination, was an

2023 JDR 0760 p5

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring)

objection by Engen that the claim of Mfoza was one for damages and that this was precluded by the PPA.

Findings by the Arbitrator

[5]

Arbitration proceedings commenced, during which Engen raised three preliminary objections – only one of which is relevant in these proceedings. It objected to the monetary compensation sought by Mfoza on the basis that such relief amounted to a claim for damages. It said damages could not be awarded under the arbitral jurisdiction conferred upon the Arbitrator, in terms of section 12B(4)(a) of the PPA.

[6]

The Arbitrator found that the dictum in Business Zone SCA, [2] that an award of damages was not competent under the remedial jurisdiction of section 12B(4), was not a proposition of universal application. He determined that a finding of an unreasonable or unfair contractual practice arising from a contract may well be corrected by way of monetary compensation.

[7]

He also found that the scope of an arbitrator's power to make a corrective award in terms of section 12B(4)(a) is formulated in general terms, namely, an award which "he or she deems necessary to correct such [unfair or unreasonable contractual] practice". The Arbitrator took the view that this included having resort to a range of corrective measures. He sought to place reliance on the dictum in Bright Idea [3] in relation to section 12(4)(a) that—

"[a]

push-pull tension between freedom and constraint similar to subsection (4)(a) is also built into subsection 4(b). The arbitrator's apparently wide power to 'compensate any party' is restricted to 'frivolous or capricious' allegations and only against those who make them to give rise to the arbitration. An arbitrator is expressly allowed to impose a compensation award against a party for frivolous or capricious referrals. In

2023 JDR 0760 p6

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring)

the absence of any similar power to award compensation as a substantive remedy for unfair or unreasonable contractual practices, it would be a matter of interpretation of the PPA and the facts of a particular case, whether an award of compensation would be an effective remedy to correct a practice. This is confirmed in the Constitutional Court's holding that 'the arbitrator's remedial powers can go no further than correcting the contractual practice in question.'" [4] (Emphasis added).

[8]

He said that section 12B(4)(a) was to be interpreted to reflect a purposive and workable interpretation of the arbitral powers vested upon an arbitrator and that those would include the power to award compensation.

[9]

The Arbitrator also found that there is no prohibition to be found in section 12B against making an award for monetary compensation for the purpose of correcting an unreasonable or unfair contractual practice. He found that there is no justification or logic in excluding an award for compensation which has a logical connection to, and represents a proportional redress against, an offending contractual practice.

[10]

In dealing with the dictum of Business Zone SCA which was relied on by Engen, the Arbitrator said that our law distinguished between a monetary award resulting from a cause of action founded upon a contractual or delictual claim for damages, and other forms of monetary compensation arising from a different cause of action. He explained that just and equitable compensation, expressly provided for in the labour dispute adjudication of unfair labour practices, is not expressly prohibited under the open-ended corrective remedial powers of an arbitrator under section 12B(4)(a) of the PPA. He found that this is implied from the express terms of the powers of an arbitrator in section 12B(4)(a) of the PPA.

[11]

In his award, the Arbitrator concluded that, as a matter of principle, there was no bar to an award for monetary compensation being made which arose out of an unfair or unreasonable contractual practice. He found that he had the power, under the broad

2023 JDR 0760 p7

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring)

rubric of monetary compensation, to award damages as well as other forms of compensation. He dismissed the preliminary objection.

Litigation history

High Court

[12]

Engen asked the High Court of South Africa, Gauteng Local Division, Johannesburg, to review and set aside the award on the basis that the Arbitrator committed a material error of law which constituted a gross irregularity, in that he exceeded his powers as contemplated by section 33 of the Arbitration Act. [5] The High Court's stance was that the Arbitrator incorrectly interpreted the provisions of section 12B(4)(a) of the PPA to confer a right upon Mfoza to claim patrimonial damages. [6] It said that the Supreme Court of Appeal and the Constitutional Court have held that the jurisdiction conferred in terms of section 12B(4)(a) is corrective. [7] It relied on the view taken by the Supreme Court of Appeal in Business Zone SCA that an award of damages is not competent under the corrective remedial jurisdiction, but only under a compensatory remedial jurisdiction. [8] As such, the relief sought by Mfoza did not fall within the corrective remedial jurisdiction of the Arbitrator. [9]

[13]

The High Court went further to hold that the Arbitrator was confined by legislation to the powers that the statute conferred. [10] Consequently, it held that an arbitrator acting under the statue cannot award relief beyond the scope of what the courts have held that the statute permits, as this is the essence of the rule of law. [11]

2023 JDR 0760 p8

Kollapen J (Majiedt J, Mathopo J, Theron J, Tshiqi J and Unterhalter AJ concurring)

[14]

The High Court explained that the aim of section 12B(4)(a) was to address the unequal bargaining power between parties, being a wholesaler and a licensed retailer. [12] It authorised corrective remedial action prospectively, and as such past wrongs could not be addressed in the form of a damages award. It explained that Engen could be directed to amend its ways in the future. [13] However...