Welihockyj and Others v Advtech Ltd and Others

• Jurisdiction: South Africa
• Citation: 2003 (6) SA 737 (W)

Welihockyj and Others v Advtech Ltd and Others
2003 (6) SA 737 (W)

2003 (6) SA p737

Citation	2003 (6) SA 737 (W)
Case No	2002/2356
Court	Witwatersrand Local Division
Judge	Rabie J
Heard	August 13, 2002
Judgment	August 13, 2002
Counsel	J J Brett SC (with him Lucas van Tonder and L J van der Merwe) for the applicants.; P J Pretorius SC for the respondents.

Flynote : Sleutelwoorde F

Arbitration — Arbitration agreement — What amounts to — Whether arbitration or mere evaluation or expert investigation contemplated depending not only on wording of reference, but also on manner in which presiding officer to arrive at decision, nature of dispute, and area and extent of dispute — Dispute resolution agreement in sale of business agreement providing for resolution of disputes by G 'independent person acting as expert and not as arbitrator' — Dispute arising and referred — All indiciae characterising proceedings as arbitration proceedings present, among them that dispute H wide-ranging and complicated, embracing allegations of fraud involving third parties, and that conduct of parties, including manner of implementation of agreement, pointing to intention to embark on arbitration, regardless of powers explicitly conferred on presiding officer by agreement — Nothing in agreement counter-indicative, including its references to 'expert' — Person presiding exercising quasi-judicial function — 'Arbitration agreement' established and I provisions of Arbitration Act 42 of 1965 applicable.

Arbitration — Arbitration agreement — Termination of effect of by Court 'on good cause shown' as intended in Arbitration Act 42 of 1965, s 3(2)(c) — When granted — Party to arbitration proceedings accused of fraudulent J

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and criminal conduct in counterclaim in proceedings — Counterclaim in addition A raising fraudulent conduct of third parties in respect of which arbitrator having no powers of investigation — In such circumstances, hearing in open Court indicated — Application for order in terms of s 3(2)(c) granted.

Headnote : Kopnota

The parties to the instant application in a Local Division had in March 1998 entered into an agreement for the sale of businesses to B parties to which the first, second and third respondents were the successors in title. The selling price was approximately R178 million. The agreement contained a dispute resolution procedure that was set out in clause 20. A dispute about the obligations of the various parties arose and in May 2001 the matter was referred for resolution in terms of clause 20, the fourth respondent being appointed to preside. C Clause 20 provided for the resolution of disputes arising out of the agreement 'by an independent person acting as expert and not as arbitrator'. The expert was entitled to 'use his full discretion with regard to the proceedings', to 'investigate . . . any matter . . . in connection with the dispute', to 'dispense wholly or in D part with formal submissions and pleadings', to 'interview and question under oath any of the parties to the dispute', and to 'decide the dispute' according to what he considered 'to be just and equitable under the circumstances'. The applicants sought an order setting aside the pending procedure, alternatively stating that clause 20 no longer regulated the dispute. Since the power of the Court to E grant the relief claimed, as well as the approach to be adopted in adjudicating the application, depended on the kind of dispute resolution procedure the parties had embarked upon, this issue had to be addressed first. It appeared that the applicants had initially, in May 2001, referred for resolution a refusal by the respondents to make a payment of R5,5 million; that the respondent had in October 2001 filed a counterclaim for R130 million based on allegations of F fraud allegedly perpetrated by the applicants and others; and that the applicants, relying on s 3(2) of the Arbitration Act 42 of 1965, had in February 2002 launched the present application. Alternative relief was also claimed. The respondents opposed the application on the grounds that the Arbitration Act did not apply to the facts of the present matter because the proceedings were not an arbitration as defined.

Section 1 of the Arbitration Act defines 'arbitration agreement' as 'a written agreement providing for the reference to arbitration of any G existing dispute or any future dispute relating to a matter specified in the agreement, whether an arbitrator is named or designated therein or not', while 'arbitration proceedings' are defined as 'proceedings conducted by an arbitration tribunal for the settlement by arbitration of a dispute which has been referred to arbitration in terms of the arbitration agreement'. Section 3(2) provides that 'the Court may at any time on the application of any party to an arbitration H agreement, on good cause shown - (a) set aside the arbitration agreement . . . or (c) order that the arbitration agreement shall cease to have effect with reference to any dispute referred'.

Held, that whether s 3(2) of the Act applied to the procedure depended on whether the reference of the disputes between the I parties (and in particular the respondents' counterclaim) was a reference to arbitration as envisaged in the Act, and on whether there was a written agreement between the parties providing for such a reference. (Paragraph [15] at 744J - 745B.)

Held, further, that an arbitration could be defined as a reference of a dispute for final determination in a quasi-judicial manner by a person or persons other than a court of competent jurisdiction. Whether parties intended to refer J

2003 (6) SA p739

their dispute to arbitration or merely to an expert for an opinion or resolution A depended on a consideration of all the circumstances of the particular case. The wording of the reference in the agreement between the parties was not conclusive but merely one of the factors to be considered in order to decide whether arbitration, or a mere valuation or investigation by an expert, was contemplated. (Paragraphs [16] - [17] at 745B/C - E.)

Held, further, that the other circumstances included, but were not limited to, the manner in which the proceedings were to be B conducted; the manner in which the presiding officer was to arrive at his decision; and the nature of the dispute. Consequently, the extent and area of the dispute could be indicative of the status of the reference. (Paragraph [17] at 746I - 747A.)

Held, further, as to the nature of the disputes forming the basis of the respondents' counterclaim, that it was apparent that the alleged fraudulent schemes perpetrated by the applicants were C serious and involved third parties being subpoenaed to testify in any forthcoming proceedings. (Paragraphs [25.1] and [26] at 749C/D - D/E and 750B - C.)

Held, further, as to the nature and extent of the contemplated proceedings, that since it was clear that the powers conferred on the fourth respondent by clause 20 were not wide enough to enable him to adjudicate properly all the submitted disputes, D it was to be expected that the parties would have agreed to conduct the proceedings in a manner similar to ordinary judicial proceedings, as opposed to a determination by a valuator or other expert acting in an informal or summary manner, and making his decision on the basis of his experience and skill instead of upon evidence placed before him. (Paragraph [29] at 751C - E.) E

Held, further, that the parties had clearly intended the procedure to be more than a mere expert investigation. The intention had been that the fourth respondent would base his findings on the evidence placed before him, and that he would exercise an arbitral or quasi-judicial function, regardless of his powers under clause 20. The very nature of issues involved were such that they would have obliged the fourth respondent to act on the evidence provided instead of F relying exclusively on his own experience and skill. (Paragraph [30] at 751I - 752C.)

Held, further, that, although clause 20 bestowed wide powers on the 'expert' in respect of the procedure to be followed and the introduction of evidence, it nevertheless clearly allowed him to act wholly or in part on the evidence and submissions made by the parties. Similarly, there was nothing in clause 20 that enjoined him to form his opinion without regard to the evidence and the parties' submissions. G The fact that he was referred to as an 'expert' did not mean that the proceedings were not to be regarded as arbitration proceedings: it could, in the light of the manner in which the agreement was to be implemented and the conduct of the parties, simply have been a reference to the scope of his powers. (Paragraph [31] at 752F/G - 753A.) H

Held, therefore, that the conduct of the parties thus far in the proceedings, the manner in which they implemented the agreement in question and the documentation before the Court all supported the conclusion that the fourth respondent would exercise a quasi-judicial function, and that nothing in clause 20 contradicted this. (Paragraphs [31] and [32] at 753C/D - D/E and 754C/D - D/E.) I

Held, accordingly, that clause 20 had established an 'arbitration agreement', that the fourth respondent was conducting an arbitration, and that the provisions of the Arbitration Act are therefore applicable. (Paragraph [33] at 754F - G.)

Held, further, that the applicants' application for an order that clause 20 should cease to have effect with reference to the disputes between the parties as J

2003 (6) SA p740

intended in s 3(2)(c) of the Act had to be granted. The applicants stood accused of fraudulent A and criminal conduct, and they ought to be allowed the opportunity to have these allegations ventilated in open Court and with a right...