UNCLE OSWALD’S Q&A FORUM – August 2021

UNCLE OSWALD’S Q&A FORUM – AUGUST 2021

DECLARATORY HIGH COURT RELIEF
DURING AN ONGOING ARBITRATION

Dear Uncle Oswald

My company is the supplier in terms of a tobacco leaf supply contract.  We are involved, as the claimant, in an arbitration against a cigarette manufacturer as the respondent.  My company claims R35 million in outstanding payments from the respondent.  Our claim arose during the Covid-19 lockdown in 2020.  The supply agreement contains a rudimentary arbitration clause which merely provides that disputes relating to the grading of tobacco leaves shall be referred to arbitration before a single arbitrator appointed by the International Tobacco Growers Association.  The arbitrator was duly appointed.   The arbitration agreement contains no reference to any applicable arbitration rules.  The parties have not agreed on any such rules.  The parties have exchanged their statements of claim and defence.

In its statement of defence the respondent pleads that our claim for payment arose from accounting disputes; that such claim is devoid of merit; and that the respondent does not owe us any money.  I disagree with the respondent, its accountant erred.  The respondent also pleads that the payment claim is not a dispute which relates to the grading of tobacco leaves.  I agree with this proposition.

Shortly after delivery of its statement of defence, the respondent launched an application in the High Court for an order declaring, first, that there is no arbitration agreement between the parties in respect of the payment dispute and, second, that the arbitrator consequently does not have jurisdiction to determine the payment dispute.

My question to you is this.  Is the respondent entitled to approach the High Court at this stage of the arbitral proceedings or, conversely, does the High Court have jurisdiction to interfere in our pending arbitral proceedings by granting declaratory relief?

Best regards

Perplexed Paddy

Dear Paddy

You have raised an interesting topic.  It relates to the topic that I addressed in Uncle Oswald’s Q&A Forum published in the June 2021 edition of Arbitrarily Speaking.  There, I dealt with the powers and obligations of an arbitrator when his or her jurisdiction is challenged.  I concluded that, although an arbitrator may and should investigate and rule on his jurisdiction, the final say over this question always lies with the High Court.

Your question relates to the High Court’s jurisdiction in a jurisdictional challenge during an ongoing arbitration.  What I have to say about this issue therefore actually forms a sequel to what is contained in this column of the June 2021 edition of Arbitrarily Speaking.

I had the pleasure of reading a recent unreported judgment given in the Pretoria High Court in the matter between Tzaneng Treated Timbers (Pty) Ltd v Komatiland Forests SOC Ltd (Tzaneng).[1]  The facts in Tzaneng were remarkably like those in your matter and the court (per Van Zyl AJ) paid particular attention to the question whether the High Court has jurisdiction to grant interdictory relief of this nature in an ongoing arbitration.  Because the judgment is of importance to arbitrators and party representatives alike, and because it contains a useful compendium of references to relevant case law, I deemed it appropriate to quote verbatim the entire section of the judgment that deals with the very essence of the question you have raised.  It reads as follows (the footnotes have been inserted in square parenthesis in the main text, where the actual footnote numbering appears, and are rendered in blue font.):

“The power of the Court to make a declaratory order

    1. Before dealing with the main issues, it is necessary to consider the Court’s powers in granting declaratory relief of the type sought by Tzaneng. Counsel for Komati submitted that the court cannot such declaratory relief unless the application is brought in terms of the provisions of section 3 of the Arbitration Act (Act 42 of 1965) (“the Arbitration Act”).  The submissions is correct insofar as Tzaneng did not expressly refer to section 3 of the Arbitration Act, but that is not fatal.
    2. If a party seeks to rely on a particular section of a statute, he must either state the number of the section and the statute he is relying on or formulate his defence sufficiently clearly so as to indicate that he is relying on it. [Footnote (fn) 3 – Yannakou v Appollo Club1974 (1) SA 614 (A) at 623G-H]  In Naude v Fraser [fn 4 – 1998 (4) SA 539 (SCA); Caratco (Pty) Ltd v Independent Advisory (Pty) Ltd 2020 (5) SA 35 (SCA); Fundstrust (Pty) Ltd (in Liq) v Van Deventer 1997 (1) SA 710 (A) at 725H – 726A] at 563G, Schutz JA said that there is no magic in naming numbers.  The significance is that the other party should be told what he is facing.  In Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others [fn 5 – 2004 (4) SA 490 (CC) paragraph [27]] it was held that where a litigant relies upon a statutory provision, it is not necessary to specify it, but it must be clear from the facts alleged by the litigant that the section is relevant and operative.  In the present case these sentiments apply.  That said, the matter concerns the inherent jurisdiction and powers of a court rather than the provisions of section 3 of the Arbitration Act.
    3. The learned authors of Mustill & Boyd [fn 6 – The Law and Practice of Commercial Arbitration in England, 2nd Edition, 1989 (hereinafter “Mustill & Boyd”), page 525] state (in the context of the then operative English Arbitration Act 1950) that the courts of England have frequently exercised a jurisdiction to grant declaratory relief in the context of a pending arbitration, it seems as part of the courts’ general supervisory powers.  Unfortunately, no authorities are cited, but the footnote records that the authors “have never heard of a challenge to the general propriety of declaratory relief”.  The same sentiments are repeated in Ramsden’s The Law of Arbitration [fn 7 – The Law of Arbitration, 2012 Reprint (hereinafter “The Law of Arbitration”), page 91] also notes this as a general occurrence:

‘There is no need for a defendant to await the making of an award before challenging the jurisdiction of the arbitrator.  It is common practice for a party to apply to court for a declaration that he is not bound by the alleged arbitration agreement which usually results in the arbitration being stayed pending a decision of the court on the jurisdictional issue.’

    1. In Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co SARL [fn 8 – 2015 (1) SA 345 (SCA) at paragraph [29]], Wallis JA said, in interpreting the majority judgment in the Constitutional Court delivered by O’Regan ADCJ in Lufuno Mphaphuli v Andrews and Another [fn 9 – 2009 (4) SA 529 (CC); (2009 (6) BCLR 527; [2009] ZACC 6) especially in paras [195] – [236]], that the South African law of arbitration is not only consistent with but also in full harmony with prevailing international best practice in the field.
    2. I was referred to no judgment in our courts which pronounces expressly on the power of a South African court to grant declaratory relief on whether there was an arbitral dispute or on the jurisdiction of an arbitrator while an arbitration was in media res. There are, however, ample examples in our jurisprudence of where our courts have granted such relief or taken no issue when it was asked for (but declined on other grounds).
    3. In Pretoria City Council v Blom and Another [fn 10 – 1966 (2) SA 139 (T); Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industria Ltd and Another 1979 (3) SA 740 (W) at 753], the applicant disputed that there was a valid arbitration agreement and applied for an order declaring the arbitration invalid and that the appointed arbitrator was not entitled to proceed with the arbitration.  Jansen J found that the alleged arbitration agreement had not been proved and granted an order in terms of the prayer.
    4. In South African Transport Services v Wilson NO [fn 11 – 1990 (3) SA 333 (W)] an application was made for a declaratory order and certain ancillary relief relating to the jurisdiction of an arbitrator.  In that matter an arbitrator had made certain interim awards as to costs but, after his jurisdiction had been challenged, he refused to make further costs awards.  The court per Van Zyl J issued a declaratory order that the “[arbitrator in that matter] at all relevant times had the jurisdiction to make interim awards in respect of costs …”.  The judgment does not deal with the basis upon which the application was launched, but it seems clear that it was not brought as review proceedings under the Arbitration Act.
    5. [Sic – absence of sentence starter word, such as ‘In’] Goodwin Stable Trust v Duohex (Pty) Ltd [fn 12 – 1998 (4) SA 606 (C)] an application was made to put a stop to arbitration proceedings which had commenced before an arbitrator. [fn 13 – The grounds upon which the application were brought are recorded at 610B – C as: “Applicant contended that there was no binding arbitration agreement between applicant and first respondent; that the appointment of second respondent as arbitrator was invalid; that there was no arbitrable issue between itself and first respondent; that the cession by which first respondent claimed the right to arbitrate was invalid or alternatively unenforceable against applicant; and that the clause purporting to permit first respondent to act in the name of the cedent was invalid.”]  The matter came before Selikowitz J.  In that matter a pre-arbitration meeting had been held before the arbitrator, Prof Christie, and the parties had agreed to his appointment and, what the judgment records as “formal and procedural matters were then considered and agreed upon”.  A dispute subsequently arose about the locus standi of the claimant and the respondent (the applicant in the proceedings before Selikowitz J) refused to further participate in the arbitration proceedings.  The application was subsequently launched by the respondent in the arbitration proceedings, but referred to in the judgment as “the applicant”.  At 615D – F, Selikowitz J stated the following in respect of onus and the jurisdiction of an arbitrator:

‘Applicant now contends that the first respondent bears the onus of proving that the arbitration can proceed.  Mr MacWilliam, who appears for applicant submits that although his client has initiated these proceedings the onus to prove that there is a valid arbitration agreement which permits it to make a claim; an arbitrable issue and that the arbitrator has been validly appointed rests upon first respondent who wishes to proceed with the arbitration.

These issues go to jurisdiction and the party wishing to utilise the arbitration procedure should, in my view, establish that it is competent in the particular circumstances so to do.  Jurisdiction either exists or it does not.  Jurisdiction cannot arise simply because applicant fails to prove that the jurisdictional requirements are absent.’

    1. Selikowitz J referred by analogy to situations where orders were obtained ex parte and then states the following at 616B – C that:

‘The respondent in those proceedings contends that there is no arbitration agreement or that there is arbitrable issue. The arbitrator cannot determine his/her own jurisdiction. (See Christopher Brown Ltd v Genossenschaft Oesterreichischer Waldbesitzer Holzwirtschaftsbertriebe Registrierte Genossenschaft mit Beschrankter Haftung [1953] 2 All ER 1039 (QB) at 1042B–G; South African Transport Services v Wilson NO and Another 1990 (3) SA 333 (W) at 336E.).  The respondent in the arbitration is thus compelled to approach the Court to set aside the arbitration proceedings.  This he does by launching an application on notice.’

    1. The decision of Snyders J (as she was then) in Greenacres Unit 17 CC and Another v Body Corporate of Greenacres and Another [fn 14 – [2006] 4 All SA 78 (W), overturned on appeal] is instructive.  In that matter, the first respondent, the body corporate of a sectional title scheme, had initiated arbitration proceedings against the owner of a unit in the sectional title scheme (the first applicant in the matter).  The first respondent had filed a statement of claim.  In the statement of claim the body corporate relied upon the provisions of rule 71(1) of annexure 8 to the Sectional Titles Act (Act 95 of 1986) which provided that “any dispute between the body corporate and an owner or between owners arising out of or in connection with or related to the Act, these rules or the conduct rules, save where an interdict or any form of urgent or other relief may be required or obtained from a Court having jurisdiction, shall be determined in terms of these rules.”  The first applicant protested that the dispute was not arbitrable and in due course served a special plea to that effect raising four grounds of objection, one of which was that, in essence, the provisions of rule 71(1) excluded the dispute between the body corporate and the owner from the jurisdiction of an arbitrator appointed under the rules.  The arbitrator ultimately ruled against the first applicant whereupon the proceedings before high court proceedings [sic] were instituted.  The basis for application before the high court does not appear from the judgment of Snyders J, but it is also clearly not a review application.  Snyders J found for the owner and issued an order in the following terms:

‘The current claims by the first respondent against the first applicant set out in the first respondent’s statement of claim annexure NOM1 to the Notice of Motion are not capable of being determined by arbitration in terms of rule 71 of annexure 8 to the Sectional Titles Act 95 of 1986’

    1. The decision of Snyders J was overturned by the Supreme Court of Appeal [fn 15 – 2008 (3) SA 167 (SCA)], but on the basis that she had interpreted the provisions of rule 71(1) incorrectly. Neither court took issue with the fact that declaratory relief had been sought in the fashion that it was.
    2. In The Law of Arbitration it is opined that the court should grant relief by way of an interdict where an applicant can show that the impending arbitration proceedings would be invalid. [fn 16 – Law of Arbitration, supra, page 110] The rationale being that it would be unrealistic and inconvenient to expect such an applicant to participate in proceedings under protest, or otherwise await the conclusion and then, if the result goes against him, oppose the award being made an award of court, and suffer the costs in the meantime.  Mustill & Boyd express the same sentiments [fn 17 – at page 525] and point out that a party in such a position may find himself having to spend money on costs which he may have difficulty in recovering.
    3. The power to issue declaratory relief orders in respect of anticipated or ongoing arbitration proceedings is consistent with section 21(1)(c) of the Superior Courts Act (Act 10 of 2013) which deals with the power of the court to grant declaratory orders. [fn 18 – Section 21(1)(c) provides: “A Division has jurisdiction over all persons residing or being in, and in relation to all causes arising and all offences triable within, its area of jurisdiction and all other matters of which it may according to law take cognisance, and has the power … in its discretion, and at the instance of any interested person, to enquire into and determine any existing, future or contingent right or obligation, notwithstanding that such person cannot claim any relief consequential upon the determination.”]
    4. I accordingly find that the court has the power to grant declaratory relief in respect of ongoing arbitration proceedings.
    5. An application for a declaratory order involves a two-stage enquiry: First the Court must be satisfied that the applicant is a person interested in an existing, future or contingent right or obligation, and then, if satisfied on that point, the Court must decide whether the case is a proper one for the exercise of the discretion conferred on it. [fn 19 – Durban City Council v Association of Building Societies1942 AD 27; Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd 2005 (6) SA 205 (SCA) at paragraph [16]]
    6. In Baleni and Others v Minister of Mineral Resources and Others [fn 20 – 2019 (2) SA 453 (GP) at paragraph [30], referring also to JT Publishing (Pty) Ltd and Another v Minister of Safety and Security and Others 1997 (3) SA 514 (CC) at paragraph [15]] at paragraph [30], Basson J said:

‘Declaratory orders are discretionary and flexible as the court pointed out in Rail Commuters Action Group and Others v Transnet Ltd t/a Metrorail and Others:

“[107] It is quite clear that before it makes a declaratory order a court must consider all the relevant circumstances.  A declaratory order is a flexible remedy which can assist in clarifying legal and constitutional obligations in a manner which promotes the protection and enforcement of our Constitution and its values.  Declaratory orders, of course, may be accompanied by other forms of relief, such as mandatory or prohibitory orders, but they may also stand on their own.  In considering whether it is desirable to order mandatory or prohibitory relief in addition to the declarator, a court will consider all the relevant circumstances.” ’

    1. The discretion in this sense means no more than that the court is entitled to have regard to a number of disparate and incommensurable features in coming to a decision. [fn 21 – Knox D’Arcy Ltd and Others v Jamieson and Others1996 (4) SA 348 (A) at 361 I]  In the context of arbitration proceedings these would include honouring the parties’ bargain to resolve their dispute by arbitration [fn 22 – Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co SARL 2015 (1) SA 345 (SCA) at paragraph [57]], caution no [sic] to enlarge the powers of courts in matters concerning arbitrations [fn 23 – Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews and Another 2009 (4) SA 529 (CC) at [235]; Zhongji, supra, at paragraph [56]], minimising the extent of judicial interference in the arbitration process [fn 24 – Aveng Africa Ltd (formerly Grinaker LTA Ltd) t/a Grinaker-LTA Building East v Midros Inv (Pty) Ltd 2011 (3) SA 631 (KZD) at paragraph [13]] and a general reluctance to retard arbitration proceedings by constant recourse to courts [fn 25 – Cf the obiter remark by Gorven AJA in Zhongji supra at paragraph [59], referring to the speech of Lord Hoffman in Fiona Trust & Holding Corporation and others v Privalov and others [2007] 4 All ER 951 (HL) at paragraphs [6] and [7]].
    2. Keating on Construction Contracts [fn 26 – 11th Edition (hereinafter “Keating”), §17-116] refers to the power of English courts to restrain arbitration proceedings [fn 27 – This is in terms of section 37 of Senior Courts Act of 1987 which provides: “(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.”], but says it will only be deployed by the court in exceptional circumstances.  This is said in the context of interdicts, but I can think of no reason why the same the principles would not be equally applicable in instances where a declaratory order will bring an end to arbitration proceedings.  With reference to authorities cited in the text, Keating says further that it was held that for exceptional circumstances to exist, it must be shown that a “legal or equitable rights have been infringed or threatened by a continuation of the arbitration, or that its continuation will be vexatious, oppressive or unconscionable”. [fn 28 – Keating, supra, at §17-116]  The equivalent of these requirements are [sic] found in the requirements set for the granting of declaratory relief referred to above [fn 29 – Durban City Council v Association of Building Societies 1942 AD 27; Cordiant, supra, at paragraph [16]].  Amongst such recognised instances in English jurisprudence are when an arbitrator lacks the necessary jurisdiction [fn 30 – Keating, supra, at §17-116 referring to Siporex v Comdel [1986] 2 Lloyd’s Rep. 428] and the matter referred for arbitration is clearly outside the arbitrator’s jurisdiction [fn 31 – Keating, supra, at §17-116 referring to AmTrust Europe Ltd v Trust Risk Group SpA [2015] EWHC 1927 (Comm), referred to with approval in Sabbagh v Khoury [2019] EWCA Civ 1219].

So, Paddy, there you have it.  A properly motivated judgment to the effect that the High Court has the jurisdiction, under the circumstances applicable to your matter, to grant declaratory relief in respect of ongoing arbitration proceedings.

The judgment also deals with related topics of equal interest to arbitrators and party representatives such as the status of an arbitration agreement, the existence or otherwise of an arbitral dispute and the jurisdiction of an arbitrator.  It makes for interesting informative reading.  I therefore include a hyperlink to the complete judgment.

Best regards

Uncle Oswald

[1]       (43966/2020) [2021] ZAGPPHC 376 (22 June 2021).

 

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