Josephson v Blacher ; Blacher v Watson and Another (17504/2020; 18835/2020) [2021] ZAWCHC 10 (25 June 2021)

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

Case no: 17504/2020

 

In the matter between:

DAVID JOSEPHSON Applicant

and

COLIN STEWART BLACHER Respondent

 

Case no: 18835/2020

 

In the matter between:

COLIN STEWART BLACHER Applicant

and

DEBORAH WATSON First Respondent

DAVID JOSEPHSON Second Respondent

 

JUDGMENT

 

Delivered by email to the parties’ legal representatives

The judgment shall be deemed to have been handed down on 25 June 2021

 

NEL AJ:

 

INTRODUCTION:

1. Two applications are presently before me. The first application is one in which the applicant seeks an order that the arbitration award published on 4 November 2020 (“the award”) be made an order of Court (“the enforcement application”). That application is opposed by the respondent.

2. The second application has been launched in terms of section 33(1) of the Arbitration Act 42 of 1965 (“the Act”) in which the applicant seeks an order that the award of the first respondent be set aside¹ (“the review application”). The second respondent opposes the application; the first respondent (hereinafter referred to as the arbitrator) filed a notice of intention to abide by the decision of this Court.

3. The issues raised in both applications are, for all intents and purposes identical, the founding papers in the review application almost mirroring the answering papers in the enforcement application.

4. For ease of reference I shall refer to the applicant in the enforcement application, who is the second respondent in the review application as Josephson; and the respondent in the enforcement application who is the applicant in the review application as Blacher.

 

THE FACTS:

5. The relevant common cause facts can be summarized as follows:

5.1. During the period of 26 February 2015 to 1 July 2015, Josephson lent the combined amount of R 2.5 million to Blacher.²

5.2. On 2 March 2015, Blacher signed the first acknowledgment of debt.³

5.3. During October 2015, there was a transaction involving Mr Panico Protopapa in terms whereof Josephson paid R750 000.00 to an entity which was controlled by Blacher at the time in order to acquire shares in a separate property owning entity (“the Panico debt”).⁴ Blacher denied that he was personally liable for the Panico debt.⁵

5.4. On 15 October 2015 Blacher signed the second acknowledgment of debt.⁶

5.5. In 2016, Blacher made certain repayments to Josephson however in 2017, he failed to make any repayments.⁷

5.6. By 29 October 2018, Blacher had repaid the total amount of R2 121 500.00 to Josephson.⁸

5.7. In late 2018, Blacher asked for a discount on the amount of money which was owing, and Josephson suggested a discount of R1.4 million provided that payment was made by a certain date. Blacher did not respond to the proposals which Josephson made.⁹

5.8. On 2 April 2019, Blacher asked Josephson once again for a discount on the amount of money which was owed by him. Josephson responded but that proposal was not accepted by Blacher.¹⁰

5.9. On 26 June 2019, Josephson’s attorneys delivered a letter of demand to Blacher in terms of which he demanded repayment of the amount of R3 861 500.00 in terms of the second AOD and repayment of the amount of R750 000.00 in respect of the Panico debt.¹¹

5.10. On 1 July 2019, Blacher’s attorneys replied to the letter of demand and disputed liability in respect of the Panico debt and stated, inter alia, that the second AOD was one to which the NCA applied and in respect of which Josephson was not a registered credit provider.¹² This latter aspect was conceded by Josephson.

5.11. On 16 July 2019, Blacher’s attorney addressed certain correspondence to Josephson’s attorneys in which he offered to repay the sum of R2.5 million on or before 31 December 2019, and stated that the offer was subject to Josephson acknowledging that Blacher was not liable for the Panico debt.¹³

5.12. On 16 July 2019, Josephson responded to Blacher’s WhatsApp correspondence and stated that he would agree to release him from any liability in respect of the Panico debt if Blacher signed a new acknowledgement of debt in the amount of R2.5 million.¹⁴

5.13. On 23 July 2019, Blacher informed Josephson by way of WhatsApp message that the correspondence from his attorneys dated 16 July 2019 and the first and second AOD were sufficient to protect Josephson. Josephson responded and stated that he wanted a new agreement which was “clean” and asked Blacher to sign a new AOD.¹⁵

5.14. In August 2019, Josephson instructed his attorneys to draft an acknowledgement of debt incorporating the terms of repayment which had been proposed by Blacher.¹⁶

5.15. On 28 August 2019, Blacher signed the third acknowledgement of debt after amending the draft thereof which had been sent to him by Josephson.¹⁷

5.16. Clause 13 of the third AOD provides as follows:

13. Any dispute between the parties arising from or in connection with this Agreement, shall be submitted to arbitration in accordance with the Expedited Rules of the Arbitration Foundation of Southern Africa (“AFSA”).

13.1 The parties hereby consent to the arbitration being dealt with on an urgent basis.

13.2 The arbitration is to be held in Cape Town.

13.3 The arbitrator shall be a practising advocate of the Cape Bar of at least 10 (ten) years’ standing, appointed by agreement between the parties to the dispute and failing such agreement being reached within 7 (seven) days, appointed by the Cape Town Branch of AFSA.

13.4 The decision of the arbitrator shall be final and binding on the parties to the dispute and may be made an order of the court at the instance of any of the parties to the dispute.

5.17. Blacher failed to make payment in terms of the third AOD which required payment of R2 500 000.00 in full or in part by 30 September 2019.¹⁸

5.18. On 8 November 2019, Blacher paid Josephson an amount of R965 000.00.¹⁹

5.19. On 20 January 2020, Josephson declared a dispute and referred same to arbitration in accordance with the third AOD.²⁰

5.20. On 21 January 2020, Blacher instituted an action in this court under case number 1205/2020 in which he sought an order declaring the three AOD’s to be void and further declaring them to constitute reckless credit agreements in accordance with the National Credit Act 34 of 2005.²¹

5.21. It appears that AFSA proposed three potential arbitrators and Josephson’s attorneys then ranked the three in the following order of preference: (1) Adv N Traverso; (2) Adv D Watson; and (3) Adv J Van Niekerk.²² Blacher’s attorneys responded stating that they had no objection to Adv D Watson being appointed as arbitrator and she was thereafter duly appointed by AFSA.²³

5.22. The arbitration commenced and ran for two days by way of a virtual hearing making use of Zoom.²⁴

5.23. Both parties were represented by counsel: Mr. Van Reenen representing Josephson and Mr. De Oliveira representing Blacher.²⁵

5.24. On 17 July 2020, Mr. De Oliveira received a call from Mr. Van Reenen during which call certain events relating to the arbitrator, and the fact that she was unwell, were communicated to Mr. De Oliveira. It was accordingly agreed between the parties that final argument in the arbitration would be postponed.²⁶

5.25. On 17 July 2020, Mr. Van Reenen sent an email to the arbitrator informing her that the parties had agreed to postpone argument of the matter.²⁷

5.26. On 20 July 2020, Mr. Van Reenen received an email from a senior colleague, Mr. Kuschke SC, in which he stated that the arbitrator was indisposed due to illness and requested Mr. Van Reenen to inform the parties that she was unable to hear argument on 21 July 2020. Mr. Van Reenen then forwarded that email to Mr. De Oliveira.²⁸

5.27. On 23 July 2020, the arbitrator sent the parties’ legal representatives an email in which she thanked them for accommodating her and requested new dates for the hearing of argument.²⁹

5.28. On 29 July 2020, Blacher’s attorneys sent Josephson’s attorneys an email in which they confirmed the postponement of the arbitration proceedings and indicated that the matter could proceed when, if at all, the arbitrator would be in a position to hear the matter.³⁰

5.29. On 31 August 2020, the parties appeared before the arbitrator and argued in the arbitration.³¹

5.30. On 8 October 2020, Josephson’s attorney enquired from AFSA when the parties could expect the arbitration award. On 9 October 2020, the arbitrator responded and advised that she remained booked off for medical reasons.³²

5.31. On 4 November 2020, the arbitrator published the award,³³ which directed Blacher to make payment to Josephson in the sum of R 1 535 000.00 together with interest a tempore morae and costs of suit on the attorney and client scale.³⁴

5.32. On 6 November 2020, Josephson’s attorney sent an email to Blacher’s attorney in which she asked when payment would be made by Blacher in accordance with the arbitration award.³⁵

5.33. On 16 November 2020, Josephson’s attorneys caused a chamber book application to be served on Blacher’s attorneys in terms of which it was sought that the award be made an order of court.³⁶

5.34. On 17 November 2020, Blacher’s attorneys sent Josephson’s attorneys an email, attaching a notice of opposition to the chamber book application, and stating that Blacher had instructed them to bring a review application which they were in the process of preparing.³⁷

5.35. On 18 November 2020, Josephson’s attorneys sent Blacher’s attorneys an email attaching correspondence in which they stated that the chamber book application would be withdrawn subject to receipt of the review application by 20 November 2020.³⁸

5.36. In response, and on 20 November 2020, Blacher’s attorneys in an email addressed to Josephson’s attorneys stated that they intended on bringing the review application in the first week of December 2020.

5.37. On 23 November 2020, Josephson’s attorney withdrew the chamber book application from the roll.³⁹

5.38. On 24 November 2020, Josephson launched an application to have the arbitration award made an order of court.⁴⁰

5.39. On 14 December 2020, Blacher’s attorney launched the review application.⁴¹

5.40. On 18 February 2021, Gamble J granted an order in terms whereof the two applications would be heard together on the fourth division roll on 17 June 2021, which is when the matter came before me.

6. From the papers, the grounds upon which Blacher sought to set aside the award could be summarized as follows:

6.1. The arbitrator knew Josephson’s counsel and attorney “outside the arbitration” and that, together with the conduct of the arbitration, creates a reasonable apprehension of bias.

6.2. The arbitrator was unwell and failed to disclose certain events relating to her illness to Mr. Oliveira, which she had disclosed to Mr. Van Reenen.⁴²

6.3. The arbitration award perpetuates an unlawful credit agreement, and gives effect to it, which is against public policy.

6.4. The arbitrator paid-lip service to Blacher’s application in terms of section 20 of the Act.

6.5. The arbitrator failed to consider Blacher’s main defence in the arbitration.

6.6. The arbitrator summarised the evidence of Blacher incorrectly.

7. I was informed by Mr. Tsele who appeared on behalf of Blacher, when the matter was argued before me, that Blacher was no longer relying on the last two grounds for review. The matter accordingly falls to be decided upon the first four grounds only.

 

THE LEGAL PRINCIPLES:

8. As a rule, if the complaint is against the result of the proceedings, the appropriate remedy is by way of appeal; if the method of the proceedings is attacked, the remedy is to bring the matter in review.

9. The grounds for review of arbitration proceedings are set out in section 33 of the Act. The procedure for bringing a matter on review is regulated by Rule 53 of the Uniform Rules of Court.

10. Section 33 of the Act accordingly provides as follows:

(1) Where—

(a) any member of an arbitration tribunal has misconducted himself in relation to his duties as arbitrator or umpire; or

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

(c) an award has been improperly obtained,

the court may, on the application of any party to the reference after due notice to the other party or parties, make an order setting the award aside.

11. The relevant portions of Rule 53 are as follows:

(1) Save where any law otherwise provides, all proceedings to bring under review the decision or proceedings of any inferior court and of any tribunal, board or officer performing judicial, quasi-judicial or administrative functions shall be by way of notice of motion directed and delivered by the party seeking to review such decision or proceedings to the magistrate, presiding officer or chairperson of the court, tribunal or board or to the officer, as the case may be, and to all other parties affected –

(a) Calling upon such persons to show cause why such decision or proceedings should not be reviewed and corrected or set aside; and

(b) Calling upon the magistrate, presiding officer, chairperson or officer, as the case may be, to despatch, within fifteen days after receipt of the notice of motion, to the registrar the record of such proceedings sought to be corrected or set aside, together with such reasons as he or she is by law required or desires to give or make, and to notify the applicant that he or she has done so.

(2) The notice of motion shall set out the decision or proceedings sought to be reviewed and shall be supported by affidavit setting out the grounds and the facts and circumstances upon which applicant relies to have the decision or proceedings set aside or corrected.

(3) The registrar shall make available to the applicant the record despatched to him or her as aforesaid upon such terms as the registrar thinks appropriate to ensure its safety, and the applicant shall thereupon cause copies of such portions of the record as may be necessary for the purposes of the review to be made and shall furnish the registrar with two copies and each of the other parties with one copy thereof, in each case certified by the applicant as true copies. The costs of transcription, if any, shall be borne by the applicant and shall be costs in the cause.

(4) The applicant may within ten days after the registrar has made the record available to him or her, by delivery of a notice and accompanying affidavit, amend, add to or vary the terms of his or her notice of motion and supplement the supporting affidavit.

12. At the hearing of the matter I informed Mr. Tsele that the court had not been furnished with the record of the arbitration proceedings. Mr. Tsele submitted that the record was not necessary, and that Blacher intended relying solely on the papers filed of record and wished to proceed to argue the review application without a record. Whilst this was not a desirable situation,⁴³ it is trite the provisions of Rule 53 exist principally in the interests of an applicant, and the right to require the record of the proceedings is primarily intended to operate in favour of and to the benefit of an applicant.⁴⁴ It is further trite that an applicant can waive procedural rights.⁴⁵ Moreover, Mr. Van Reenen, who appeared on behalf of Josephson, had no difficulty with the application proceeding without regard to the record. I accordingly continued to deal with the matter and, in the absence of a record, any material dispute of fact in respect of the arbitration proceedings, and the review application as a whole, falls to be determined by application of the Plascon-Evans principle.⁴⁶

13. Before turning to the facts of the present matter it is necessary to set out a few further legal principles applicable to review applications.

14. In Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA) Harms JA at para [4] stressed the need, when courts have to consider the confirmation or setting aside of arbitral awards, for adherence to the principles of party autonomy, which requires a high degree of deference to arbitral decisions and minimises the scope for intervention by the courts.

15. Moreover, in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 (4) SA 529 (CC) the O’Regan ADCJ at para [235] held as follows:

…it seems to me that the values of our Constitution will not necessarily best be served by interpreting section 33(1) [of the Act] in a manner that enhances the power of courts to set aside private arbitration awards. Indeed, the contrary seems to be the case. The international and comparative law considered in this judgment suggests that courts should be careful not to undermine the achievement of the goals of private arbitration by enlarging their powers of scrutiny imprudently. Section 33(1) provides three grounds for setting aside an arbitration award: misconduct by an arbitrator; gross irregularity in the conduct of the proceedings; and the fact that an award has been improperly obtained. In my view, and in the light of the reasoning in the previous paragraphs, the Constitution would require a court to construe these grounds reasonably strictly in relation to private arbitration.

16. O’Regan ADCJ went on at para [236] to state that:

Courts should be respectful of the intentions of the parties in relation to procedure. In so doing, they should bear in mind the purposes of private arbitration which include the fast and cost-effective resolution of disputes. If courts are too quick to find fault with the manner in which an arbitration has been conducted, and too willing to conclude that the faulty procedure is unfair or constitutes a gross irregularity within the meaning of section 33(1), the goals of private arbitration may well be defeated.

17. In Total Support Management (Pty) Ltd and Another v Diversified Health Systems (South Africa) (Pty) Ltd and Another (457/2000) [2002] ZASCA 14 (25 March 2002) at the Supreme Court of Appeal at para [21] held that:

… The appellants can challenge the second respondent's award only by invoking the statutory review provisions of sec 33(1)(a) and (b) of the Act. Proof that the second respondent misconducted himself in relation to his duties or committed a gross irregularity in the conduct of the arbitration is a prerequisite for setting aside the award. The onus rests upon the appellants in this regard. As appears from the authorities to which I have referred, the basis on which an award will be set aside on the grounds of misconduct is a very narrow one. A gross or manifest mistake is not per se misconduct. At best it provides evidence of misconduct (Dickenson & Brown v Fisher's Executors, supra, at 176) which, taken alone or in conjunction with other considerations, will ultimately have to be sufficiently compelling to justify an inference (as the most likely inference) of what has variously been described as "wrongful and improper conduct" (Dickenson & Brown v Fisher's Executors, supra, at 176), "dishonesty" and "mala fides or partiality" (Donner v Ehrlich, supra, at 160 - 1) and "moral turpitude" (Kolber and Another v Sourcecom Solutions (Pty) Ltd and Others, supra, at 1108 A).

18. I turn now to deal with the facts of the present matter.

 

First ground of review: That the arbitrator knew Josephson’s counsel and attorney socially:

19. Blacher alleges in his founding affidavit that at the commencement of the arbitration and during other times, the arbitrator referred to Ms. Samantha Frost, an associate in the employ of Josephson’s attorneys, by her first name, and appeared to know Mr. Van Reenen outside of the arbitration.⁴⁷ Blacher concedes that on its own, a right-minded and reasonable person could not reasonably apprehend partiality and bias on this basis alone.⁴⁸ However, it was contended on behalf of Blacher that this, viewed together with the fact that the arbitrator had called Mr. Van Reenen in the early hours of the morning on 17 July 2020 to request him to take over a brief which she was unable to attend to, and that Mr. Van Reenen had indeed attended at her chambers, at which point the arbitrator had informed Mr. Van Reenen of some peculiar facts,⁴⁹ gave rise to a reasonable apprehension of bias.⁵⁰ These facts are however clarified by Josephson in his answering affidavit. At a pre-trial hearing before the arbitrator, it was evident that the arbitrator had mistaken Ms. Frost for another attorney with the same name and that she was indeed not familiar with Ms. Frost who was in the employ of Josephson’s attorneys.⁵¹ It is moreover evident from the answering affidavit that Mr. Van Reenen had received a call from the arbitrator on 16 July 2020 wherein she requested him to take over a brief for a recusal application. Mr. Van Reenen was requested to meet the arbitrator at the chambers of the Chairman of the Cape Bar Council where the arbitrator was present. At this meeting it became apparent that the arbitrator was not well. Mr. Van Reenen then went to the arbitrator’s chambers and discussed the recusal matter further with the arbitrator, her instructing attorney and the clients. Mr. Van Reenen took over the matter and the parties were able to take an order by agreement.⁵² What is not in dispute between the parties is that at no stage did Mr. Van Reenen discuss the pending arbitration with the arbitrator, or the argument in respect thereof, which was scheduled to be heard on 21 July 2020.⁵³

20. The interaction between Mr. Van Reenen and the arbitrator was immediately disclosed by Mr. Van Reenen to Mr. De Oliveira, and the parties, in light thereof, agreed to postpone the argument set to take place on 21 July 2020.⁵⁴ The further events have already been set out above. Josephson continues to state that Mr. Van Reenen has no relationship with the arbitrator other than that of colleagues and, other than assisting the arbitrator on 16 July 2020 with the aforementioned recusal application, Mr. Van Reenen has not previously worked with her and has also not had the arbitrator as an opponent.

21. Mr. Tsele takes issue with the fact that the evidence given by Josephson in his answering affidavit amounts to hearsay evidence. However, it is evident that the hearsay evidence adduced was in order to address the hearsay evidence contained in Blacher’s founding affidavit. Both parties adduced hearsay evidence because the evidence relied upon by Blacher was in respect of correspondence which took place between Mr. De Oliveira and Mr. Van Reenen.

22. In the matter of President of the Republic of South Africa and others v South African Rugby Football Union and Others 1999 (4) SA 147 (CC) the Constitutional Court considered the test applicable to determine whether a judicial officer is disqualified from hearing a case by reason of a reasonable apprehension of bias. The court held that at para [48]:

It follows from the foregoing that the correct approach to this application for the recusal of members of this court is objective and the onus of establishing it rests upon the applicant. The question is whether a reasonable, objective and informed person would on the correct facts reasonably apprehend that the judge has not or will not bring an impartial mind to bear on the adjudication of the case, that is a mind open to persuasion by the evidence and the submissions of counsel.

23. Mr. Tsele attempted to distinguish this from the present matter on the basis that the aforementioned case dealt with the recusal of judges who take an oath to administer justice without fear or favour. The principles are however also applicable to matters such as the present where an arbitrator acts in a quasi-judicial capacity. See in this regard the matter of Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another (supra) where Kroon AJ used the same test to determine whether there was a reasonable apprehension of bias on the part of an arbitrator.

24. The threshold for a finding of real or perceived bias is high and the onus of proving such lay on the applicant.⁵⁵

25. Applying those principles to the facts of this case, the applicant has failed to establish a reasonable apprehension of bias. The arbitrator at no point in time met alone with Mr. Van Reenen (not that this in and of itself would constitute a reasonable apprehension of bias), nor was any aspect of the arbitration discussed between them on 16 July 2020. Both Mr. Van Reenen and the arbitrator are members of the Cape Bar. The fact that they had conversed on 16 July 2020 does not, even in light of the peculiar facts disclosed by the arbitrator to Mr. Van Reenen in the presence of the Chairperson of the Cape Bar Council, create a reasonable apprehension of bias. Furthermore, the allegation of an apprehension of bias was raised for the first time after the award had been published. I am in agreement with the submissions of Mr. Van Reenen that if Blacher had truly perceived any bias on the part of the arbitrator these concerns would have been raised prior thereto.

 

Second ground of review: The arbitrator’s illness and her failure to disclose same to Blacher:

26. As with the first ground of review, this ground was also raised for the first time after the award had been published.

27. Furthermore, Mr. De Oliveira was informed of the arbitrator’s illness and the difficulties with hearing the argument by Mr. Van Reenen as soon as he became aware of it. He had immediately disclosed the contact which he had had with the arbitrator and the fact that she appeared unwell. There is nothing sinister in the arbitrator’s failure to inform Mr. De Oliveira of her illness on the day that Mr. Van Reenen had discovered it, and her failure to do so certainly does not constitute misconduct in terms of section 33(1) of the Act.

28. Moreover, the arbitrator did not contact Mr. Van Reenen to inform him that she was ill. She contacted Mr. Van Reenen in order to pass on a brief. The probabilities are that the arbitrator herself at that point in time, given the nature of her illness and the facts of this matter, was unaware that she was ill. She could therefore not have been expected to convey an illness, of which she was likely not aware, to Mr. De Oliveira.

29. In addition, on 20 July 2020, Mr. Van Reenen received an email from a senior colleague, Mr. Kuschke SC, which read as follows:

I understand that you are in arbitration before Deborah Watson in which argument is set down for tomorrow.

Unfortunately, Deborah is indisposed through illness and has asked me to let you know that she will be unable to do the hearing tomorrow.

She will be in touch with the parties to rearrange the date in the near future.

I do not know who is involved on the opposition side. Can I ask you to please pass this message on to them?

30. Mr. Van Reenen on the same date forwarded this email to Mr. De Oliveira. There can accordingly be no doubt that Blacher and his legal representatives were kept abreast in respect of the arbitrators wellbeing. There is accordingly no merit in the contention that the arbitrator chose to disclose information to Mr. Van Reenen which was not disclosed to Mr. De Oliviera.

31. Insofar as Blacher suggests that the arbitrator was unwell during the course of the proceedings or during argument of the matter, this is again only raised after the award had been published, and there is nothing on the papers to prove such a suggestion. Blacher does not allege that the arbitrator showed any signs of illness during the hearing or during argument. Josephson on the other hand alleges that it was apparent that she was fit to arbitrate.⁵⁶

32. Blacher has accordingly not discharged the onus upon him in this regard.

 

Third ground of review: arbitration award perpetuates an unlawful credit agreement:

33. As set out above, it is common cause between the parties that the first two AOD’s constitute credit agreements as defined in the National Credit Act. It is moreover common cause that Josephson was not a registered credit provider at the time, and that no credit assessment had been conducted by him on Blacher before the monies were advanced. Blacher accordingly contended that the first two AOD’s constituted unlawful credit agreements and are void.⁵⁷ On 16 July 2019, after taking issue with the legality of the first two AOD’s, Blacher’s attorneys addressed correspondence to Josephson’s attorneys wherein he offered to repay the sum of R 2.5 million on or before 31 December 2019, which offer was subject to Josephson releasing him from any liability in respect of the Panico debt.⁵⁸ In the arbitration, Blacher resisted the admission of this letter into evidence; however, the arbitrator found it to be admissible.⁵⁹ Blacher’s evidence at the hearing was that he intended to pay a total sum of R 2.5 million to Josephson (including monies he had already paid) and not that he would pay a further R 2.5 million in addition to that already paid.⁶⁰ This was denied by Josephson who stated that what was meant was that R 2.5 million would be paid in addition to whatever repayments had already been made.⁶¹ On 28 August 2019 the parties signed the third AOD in which Blacher acknowledged being indebted to Josephson in the sum of R 2.5 million.⁶² Josephson contends that had Blacher’s version been true, he would not have agreed to sign the third AOD which clearly reflected the sum of R 2.5 million as his indebtedness to Josephson.⁶³

34. After hearing all of the evidence, the arbitrator rejected the version of Blacher,⁶⁴ and accepted the version of Josephson that the third AOD was a compromise of the loan amounts and the Panico debt.⁶⁵

35. What was further argued before the arbitrator was the lawfulness of the third AOD with Blacher contending that it was unlawful as it perpetuates the original invalidity of the first and second AOD’s.⁶⁶ The arbitrator was specifically referred to the matter of Shabangu v Land and Agricultural Development Bank of South Africa and Others 2020 (1) SA 305 (CC). In that matter, an agreement was entered into between parties which was invalid for lack of statutory compliance. The parties to the loan then entered into an acknowledgment of debt. The Land Bank argued that the AOD constituted a compromise and was not tainted by the invalidity of the loan agreement. The Constitutional Court considered the terms of the AOD, and held that the acknowledgment of debt was invalid because it related to the same indebtedness flowing from the invalid agreement. It was a resuscitation of the invalid agreement which did not change the essential claim of the Land Bank or the obligations of Westside as debtor. In this regard it is trite that the validity of a subsequent agreement entered into between the same parties following upon an earlier invalid agreement depends on whether it amounts to a novation (in which case it remains tainted) or a compromise (in which case it is not tainted).⁶⁷

36. Blacher also relied upon the decision in Weltmans Customs Office Furniture (Pty) Ltd (in liquidation) v Whistlers CC 1999 (3) SA 116 (SCA) to which the arbitrator was also referred. In that matter, the sale of the business was invalid for statutory non-compliance and a subsequent agreement was entered into in terms of which the purchase price in respect of the sale of the business was reduced and paid off over a number of months. The Supreme Court of Appeal considered the agreement and held that it was sufficiently closely connected to the invalid agreement, that it was void by virtue of the same statute.

37. Mr. Van Reenen argued that Shabangu and Weltmans were distinguishable from the facts of the present matter in that when viewed in light of the correspondence from Blacher’s attorneys on 16 July 2019, the third AOD, which Blacher himself made amendments to, was clearly a compromise between the parties in that it also involved the Panico debt. That the third AOD constituted a compromise is denied by Blacher.⁶⁸ This matter was however fully ventilated and argued before the arbitrator.

38. The arbitrator at paras [53] to [55] of her award found as follows:

[53] Despite documentary evidence to the contrary, the Defendant persisted with the argument that the third AOD was not a compromise.

[54] As a settlement agreement, the third AOD must be considered on its own merits. The time the agreement is entered into is when the applicability of the NCA should be assessed. The third AOD contains no provisions for the payment of interest, no discount and no fee or charges in respect of the deferred payment. The Defendant’s reliance on the case of Carter Trading with respect to the attorney client costs clause making the NCA applicable is somewhat contrived as this would render most commercial agreements as credit agreements which is obviously not the case.

[55] Given the above, it is inescapable that the third AOD was intended by the parties to be a compromise / settlement of the loan as well as the Panico transaction, and the provisions of the NCA do not apply.

39. Without the benefit of the record, which Blacher has elected not to place before the court,⁶⁹ I can find no difficulties with the reasoning of the arbitrator and her finding that the third AOD constituted a compromise between the parties. Moreover, one has to bear in mind that the present matter is a review application, and not an appeal, and accordingly does not constitute a rehearing of the merits of the matter.⁷⁰ It may be for this reason that Mr. Tsele placed less weight on these contentions as a ground for review, and more weight on them in his argument in respect of the enforcement application, and it is as a result of the latter application that I have considered these contentions in more detail than would have been the case if only the review application was before me. Nevertheless, as stated above, I can find no fault with the reasoning or finding of the arbitrator who had the benefit of hearing oral evidence on behalf of both parties.⁷¹ It is evident from her award that she paid due weight to the versions of both parties, the relevant documentary evidence presented, and the legal arguments on behalf of the parties, including the relevant case law.⁷²

40. On the papers before me there is accordingly no basis to find that the third AOD did not constitute a compromise between the parties and that its enforcement would therefore perpetuate an unlawful credit agreement and be contrary to public policy.

41. Moreover, given the provisions of the third AOD there can be no doubt that the arbitrator correctly found that the National Credit Act is not applicable to it.

42. There is accordingly no merit in this ground for review, nor is there any merit in this ground of opposition to the enforcement application.

 

Fourth ground of review: arbitrator paid lip-service to Blacher’s application in terms of section 20 of the Act

43. Blacher alleges that the arbitrator failed to refer a question of law, being whether she had the power to stay the arbitration proceedings pending the outcome of the High Court proceedings under case number 1205/2020, for determination in terms of section 20 of the Act. He alleges that the arbitrator paid lip-service to his application in terms of that section.

44. Section 20(1) of the Act provides as follows:

An arbitration tribunal may, on the application of any party to the reference and shall, if the court, on the application of any such party, so directs, or if the parties to the reference so agree, at any stage before making a final award state any question of law arising in the course of the reference in the form of a special case for the opinion of the court or for the opinion of counsel.

45. It is evident that, upon an application of any party, the arbitrator has a discretion as to whether or not, any question of law should be referred to a court. It is only where a court has ordered such referral, or the parties have agreed thereto, that the arbitrator has no discretion.

46. The arbitrator exercised her discretion against a referral of the question of law to a court. She essentially found that Blacher was attempting to forum shop, despite the provisions of clause 13 of the third AOD in terms whereof the parties had expressly agreed that any dispute arising out of the AOD would be referred to arbitration.

47. The arbitrator at paras 25 to 30 of her award found as follows:

[25] The Defendant then launched a late application⁷³ for a referral to the High Court of a question of law, namely, whether the arbitrator is possessed of the power to stay the present arbitration proceedings pending the outcome of the High Court proceedings [under case number 1205/2020].

[26] Mr. Van Reenen, for the Claimant, contended that the true purpose of the application was to delay the proceedings, and that moreover, the question of law sought to be referred to the Court is settled.

[27] The effect of the proposed stay of proceedings is that the arbitration would be suspended, and the disputes would eventually be determined by the High Court thereby rendering the arbitration proceedings redundant.

[28] It appears that the purpose intended by the Defendant in preferring the matter to be dealt with by the High Court is due to what his counsel terms “the massive and inordinate prejudice that may result if the proceedings are not stayed”, given that in terms of the parties’ arbitration agreement, there is no right of appeal in these proceedings.

[29] It is evident from section 3(1) of the Arbitration Act that an arbitration agreement may only be terminated with the consent of all the parties, or by a court. An arbitrator does not have this power. The arbitrator is appointed by agreement between the parties and is obliged to act in terms of that agreement and in accordance with the Arbitration Act.

[30] The arbitration agreement contained in the third AOD was signed by both parties and dated 28 August 2019, which means it preceded the institution of the High Court action. While the Defendant may prefer at this stage to hedge his bets on the High Court with the concomitant right of appeal, there is no legal justification therefor.

48. It is evident from these paragraphs of the award that the arbitrator did not simply pay lip-service to the application, as alleged by Blacher, but gave it due consideration and ultimately exercised her discretion against referring any question of law to a court.

49. In this regard the comments of Harms JA in respect of section 20 of the Act in the matter of Telcordia Technologies Inc v Telkom SA Ltd (supra) at para [154] are on point:

Its purpose, at the very least, is not to enable parties, who have agreed to refer a legal issue to an arbitrator to renege on their deal. They have in such a case chosen their decision-maker for the particular issue and they are bound by their choice. In this case, the primary question, as well as the validity of the moratorium agreement, was specifically referred to the arbitrator for his decision. To allow a party in these circumstances to utilise s 20 would frustrate the arbitration agreement. It is not against public policy to agree to the finality of an extra-curial decision on a legal issue especially where the review rights contained in s 33 remain available, enabling the courts to retain control over the fairness of the proceedings.

50. Insofar as Mr. Tsele argues that the arbitrators reference to section 3 of Act evidences that she misconstrued the nature of the application, that cannot be so. Her reference to the section has to be read in context of the award and the paragraphs quoted above. When that is done it is evident that the arbitrator did not misconstrue the nature of the application before her.⁷⁴ Moreover, even if she did, it would not amount to a gross irregularity as envisaged in section 33(1)(b) of the Act. This ground for review must therefore also fail.

 

CONCLUSION:

51. In light of what is set out above, there is no basis for the award to be set aside in terms of section 33(1) of the Act, nor is there any reason to refuse Josephson’s application in terms of section 31(1) to have the award made an order of court.

52. In Cool Ideas 1186 CC v Hubbard and Another 2014 (4) SA 474 (CC) Majiedt AJ held at para [56] that:

…If a court refuses too freely to enforce an arbitration award, thereby rendering it largely ineffectual, because of a defence that was raised only after the arbitrator gave judgment, that self-evidently erodes the utility of arbitration as an expeditious, out-of-court means of finally resolving the dispute.

53. The four grounds of review relied upon by Blacher also formed the basis of his opposition to the enforcement application. The first two of these grounds were raised for the first time after the arbitrator had published her award, and for the reasons set out above, are without merit. The last two grounds, whilst argued during the arbitration, are similarly, for reasons already stated, without merit.

54. In concluding, in Cool Ideas 1186 CC v Hubbard (supra) Majiedt AJ at para [59] went on to state that:

…A court’s refusal to enforce an arbitration award will also erode, to some extent, the utility of the arbitration process. But where a court is called upon actively to facilitate an illegality there is a need for greater caution.

55. The facts of Cool Ideas 1186 CC are however distinguishable from the facts of the present matter. In that matter the arbitration award was in violation of a statutory prohibition backed by a criminal sanction. The court correctly held that enforcing such an award would be contrary to public policy. This is not the case in the present matter where, as herein stated, there is no basis to find that the third AOD did not constitute a compromise between the parties and that its enforcement would therefore perpetuate an unlawful credit agreement and accordingly be contrary to public policy.

 

ORDER:

56. I therefore make the following order:

(i) The application under case number 18835/2020 is dismissed with costs.

(ii) In respect of case number 17504/2020 it is ordered that:

(a) The arbitration award made by Advocate Deborah Watson on 2 November 2020, a copy of which is annexed to the founding affidavit of Ms. Samantha Marie Frost and marked “SMF1”, is made an order of court;

(b) The respondent shall pay the costs of the application, including all reserved costs.

 

 

 

 

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NEL AJ