Maseru City Council V SCIG-SMCJ-TIM Joint Venture (C of A (CIV) 66/2024) [2025] LSCA 26 (2 May 2025)

LESOTHO IN THE COURT OF APPEAL OF LESOTHO HELD AT MASERU C of A (CIV 66/2024 In the matter between – (CCA/0019/2024) MASERU CITY COUNCIL APPELLANT and SCIG-SMCJ-TIM JOINT VENTURE RESPONENT CORAM: MOSITO P MUSONDA, AJA VAN DER WESTHUIZEN, AJA HEARD: 14 APRIL 2025 DELIVERED: 2 MAY 2025 FLYNOTE Arbitration – Interim interdict – Jurisdiction of court notwithstanding arbitration clause – Independent guarantee – Fraud exception – Arbitration Act 1980, ss 4 and 22 – Relationship between guarantee and main contract – Interlocutory relief pending arbitration – Misrepresentation as ground for interdict The appellant (Maseru City Council) appealed against a decision of the High Court (Kopo J) granting interim relief to the respondent, a joint venture awarded a municipal tender, pending arbitration. The High Court had found that it had jurisdiction to entertain the application despite an arbitration clause in the underlying contract, on the basis that the guarantee agreement at issue was independent and that jurisdictional thresholds were satisfied. Held, dismissing the appeal (Van der Westhuizen AJA, with Mosito P and Musonda AJA concurring): (1) Courts must generally respect arbitration clauses, but s 22(1)(f) of the Arbitration Act 1980 confers jurisdiction to grant interim interdicts in aid of arbitration. The relief sought by the joint venture fell squarely within this statutory exception. (2) The guarantee agreement with a third-party bank, not party to the arbitration clause, was correctly treated as independent from the main contract, thus warranting separate judicial consideration. (3) The High Court did not determine whether fraud was committed, but found that sufficient allegations had been made to meet the jurisdictional threshold for interim relief; fraud need not be conclusively proved at this stage. (4) The argument that the High Court improperly usurped the arbitrator’s role was rejected; the application sought only to preserve the status quo pending arbitration. (5) Despite imprecise reasoning in the High Court’s articulation of “fraud and breach of contract requirements,” its conclusion on jurisdiction was correct in law. Appeal dismissed with costs. JUDGMENT VAN DER WESTHUIZEN, AJA: Introduction [1] Arbitration as a form of alternative dispute resolution is supposed to render formalistic, lengthy, cumbersome litigation before courts unnecessary. Yet, issues around arbitration clauses often end up before this apex Court, especially regarding the jurisdiction of the High Court. Litigation commences before arbitration starts and sometimes continues even during arbitration. Whether this is a waste of time and resources, litigants and their lawyers may have to ask themselves. [2] This is an appeal by the Maseru City Council against a judgment by Kopo J in the Commercial Division of the High Court. The respondent is a Joint Venture comprising Shanxi Construction Investment Group Co Ltd (SCIG), Shanxi Mechanisation Construction Group Co Ltd (SMCG) and TIM Plant Hire Company (Pty) Ltd (TIM). The first-mentioned two are foreign companies. TIM is a local company. For ease of reference the appellant is in this judgment referred to as “the City”; and the respondent as “Joint Venture”. [3] A record consisting of 489 pages in five volumes, together with heads of argument of 63 pages, with annexures, were put before this Court. Yet, counsel for the City submitted at the commencement of the presentation of oral argument that one narrow issue had to be decided: Was the jurisdiction of the High Court “delayed” because of the provision for arbitration in the contract between the parties? [4] This skirmish is not the only court battle that has been fought in a long saga of an apparent ongoing war between the parties. In the very first two paragraphs of the High Court’s judgment, the following is stated: “The war between the parties is producing numerous battles that are occupying the court even before it is fought in earnest. I have dealt with the application for security for costs before. My Brother Mathaba J has handled another skirmish … between the same parties on the same facts but for different prayers. I am now seized with the question of jurisdiction …. there is yet another battle on other preliminary issues in the horizon…. This is the 3rd interlocutory application (if they can all be labelled as such) concerning the parties in this matter.” Background [5] The facts are narrated in the High Court judgment. I summarise: [6] In October 2019 Joint Venture was awarded a tender by the City for the improvement of Mpilo Boulevard Intersections and Links. The contract between them was signed on 9 August 2021. [7] In terms of the contract Joint Venture had to provide an on- demand guarantee in the amount of M37 903 681.28. It furthermore stipulated that the City had to make an advance payment of M75 807 363.60 to Joint Venture. In turn, Joint Venture had to provide a guarantee from a reputable bank, to the same amount as the advance payment. If it were provided by a foreign company, Joint Venture was to find a local correspondent bank to guarantee it. [8] Joint Venture was unable to execute its contractual mandate. According to them, this was because of breach of contract by the City, in failing to provide advance payments as was agreed, as well as other factors outside the control of Joint Venture. [9] In a letter the City informed Joint Venture on 6 December 2023 that it terminated the contract. Consequently, Joint Venture launched an application in the High Court. High Court [10] The relief sought included that – (1) Standard Lesotho Bank (the second respondent before the High Court, referred to hereafter as Standard Bank), “pending the final outcome of the dispute resolution processes in terms of the … contract …”, be interdicted from releasing any payment against the Guarantee to the City”; and - (2) the respondents be interdicted “from executing in whatever form …from taking any steps in execution of the purported termination of the … contract pending the outcome of (the) dispute resolution process in terms of the contract …”. [11] The City challenged the jurisdiction of the High Court. In view of the arbitration clause in the contract, the Court could not hear Joint Venture’s application, the City argued. [12] The High Court referred to the Arbitration Act 12 of 1980. Counsel for the City submitted that section 4 indicated “the sacrosanctity” of arbitration. [13] On behalf of Joint Venture it was argued that the guarantee agreement was separate and independent from the main contract. Standard Bank, a party to that agreement and the second respondent before the High Court, was not bound by the arbitration clause in the main agreement. [14] The High Court dealt with this argument. It referred to case law; and concluded: “What became clear from Loomcraft (Loomcraft Fabrics CC v Nedbank and Another 1996 (1) SA 812 (A)) and Compass Insurance (Compass Insurance Company Ltd v Hospitality Hotel Developments 2012 (2) SA 537 (SCA)) is that the guarantee agreement is between the bank/the guarantor and the beneficiary and is independent of the main agreement.” [15] The very same Loomcraft judgment - which counsel for the City referred to as the locus classicus - brought the issue of fraud into the picture. Scott AJA stated: “(I)t is now well established that a Court will grant an interdict restraining a bank from paying the beneficiary under a credit in the event that the beneficiary was a party to fraud in relation to the documents presented to the bank for payment. For, as was observed by Lord Diplock, ‘…fraud unravels all. The courts will not allow their process to be used by a dishonest person to carry out a fraud’… But the fraud will have to be clearly established. … The onus, of course remains the ordinary civil one which has to be discharged on a balance of probabilities but, as in any other case where fraud is alleged, it will not lightly be inferred.” [16] Regarding fraud the High Court considered the parties’ reference to a High Court judgment of Mathaba J (CCA/O033/2023); the judgment of this Court in PS Ministry of Foreign Affairs and International Relations v Maope (C of A (CIV) 52/2018; [2019] LSCA 12 (31/5/2019)); and Loomcraft; as well as several other authorities. The arguments before the court dealt with – inter alia - the question whether fraud, or an allegation of fraud, amounts to an exception to the general rule that courts should respect and not interfere with arbitration proceedings, in other words with a court’s jurisdiction. [17] In paragraph [32] of its judgment the High Court states: “If it is indeed true that (the City) is the one who breached the agreement but went on to misrepresent to the bank that (Joint Venture) failed to perform and terminated the contract, that is fraud.” [18] In paragraph [33] it explains: “At this stage, this court is concerned with whether (Joint Venture) has established the jurisdictional requirements of alleging fraud. It is not yet at the stage of considering if indeed there is fraud. If (the City) has misrepresented to the bank that (Joint Venture) has breached the contract when (it) has not, there is an element of fraud to be investigated.” [19] After considering “differing approaches” concerning jurisdictional requirements in matters of this kind, the High Court’s conclusion is stated in para [35] of its judgment: “It would be absurd and opening floodgates of abuse of this type of contracts to strictly stick to fraud as the only requirement to challenge the improper calling of a guarantee. In casu, I have concluded that (Joint Venture) has successfully satisfied not only the fraud jurisdictional requirements but even the breach of contract requirement.” [20] The High Court thus found that it had jurisdiction. This Court [21] The City appealed to this Court. Its Ground of Appeal 1(f) deals with the fraud issue: “The learned judge … erred and or misdirected himself by concluding in paragraph 35 of the judgment that there is fraud when no such evidence was made out in the founding papers to warrant this conclusion.” [22] Paragraph 2 of the Grounds of Appeal states: “The learned judge … in summary erred and or misdirected himself by concluding on the evidence pleaded that the jurisdiction of the court is not delayed and the court was better suited to deal with the matter given the welter of evidence placed before the court … against that approach.” [23] The submissions before this Court were similar to the arguments presented to the High Court. The importance of arbitration as an alternative dispute resolution mechanism, together with courts’ duty to respect arbitration clauses in a contract, were discussed. The “separateness”, or “independence”, of guarantee agreements was debated. [24] Much of the argument presented by counsel for both the City and Joint Venture dealt with the relevance to the jurisdiction of the High Court of fraud, fraudulent misrepresentation, or allegations thereof. In this regard Joint Venture’s reliance on fraud as a factor relevant to jurisdiction was countered by the City that not fraud, but breach of contract, was at stake. On behalf of Joint Venture it was submitted that the unjustified allegation by the City to Standard Bank that Joint Venture had breached the contract was indeed fraudulent. Resolution Arbitration [25] Any dispute about whether and by whom breach of contract was committed clearly has to be dealt with in the arbitration proceedings. This is indeed why the arbitration clause was included in the contract at the centre of this matter. The question is whether the High Court had jurisdiction to hear Joint Venture’s application for the relief sought (as set out in [10] above). Grounds of Appeal [26] The City’s Grounds of Appeal (above in [21] and [22]) give rise to some concern. Nowhere in paragraph [35] of the High Court’s judgment does Kopo J conclude that there is, or was, fraud. The paragraph deals with “jurisdictional requirements”. The Court concludes that these had been successfully satisfied, with reference to both fraud and breach of contract. In paragraph [33] of the judgment it is clearly stated that the Court was concerned with the jurisdictional requirements and not considering if indeed fraud had occurred. [27] Furthermore, I have been unable to detect any finding – at least in the High Court’s conclusion – that it “was better suited to deal with the matter”, as alleged in the Grounds of Appeal. Better than who? An arbitrator? The judgment was not concerned with anyone’s suitability to do anything. It dealt with jurisdiction. [28] One is left to wonder whether these statements resulted from an over-hasty reading of the judgment, a lack of proper preparation, or an attempt to mislead this Court, in the hope that the judges would not read the judgment appealed against. Questions [29] The ultimate issue before this Court is whether the High Court had jurisdiction regarding the relief sought by Joint Venture. In order to reach a conclusion, a few questions have to be considered, after the debates in the High Court and in this Court. One is whether the guarantee agreement was separate and independent from the main contract, as argued. Another relates to the relevance of alleged fraud. Power of courts [30] The Arbitration Act is a good place to start. Section 4 is headed: “Binding effect of arbitration agreement and power of court in relation thereto”. It determines: “(1) Unless the agreement otherwise provides, an arbitration agreement shall not be capable of being terminated except by consent of all the parties thereto. (2) The court may at any time on the application of any party to an arbitration agreement, on good cause shown – (a) set aside the arbitration agreement; or (b) order that any particular dispute referred to in the arbitration agreement shall not be referred to arbitration; or (c) order that the arbitration agreement shall cease to have effect with reference any dispute referred.” [31] This statutory recognition of arbitration confirms its prominent role in the law of Lesotho. When parties voluntarily choose arbitration as an alternative to litigation and include their choice in a written contract – like in this case – courts must respect their choice. However, section 4 provides for termination of the arbitration agreement, but only with the consent of all of them. Furthermore, the court may set aside the arbitration agreement, or order that any particular dispute is excluded from arbitration. [32] In this case there was neither consensus to terminate the arbitration agreement, nor any application to set it aside, or to exclude any dispute from arbitration. Section 4 is silent on the relevance of fraud - or an allegation to that effect - regarding the rule that parties are bound by an agreement on arbitration in a contract. [33] What the Arbitration Act is not silent on though, is when a court of law may indeed be approached by a party to a contract containing an arbitration clause. Under the heading ”General powers of the court” section 22 provides: “(1) For the purposes of and in relation to a reference under an arbitration agreement, the court shall have the same power of making orders in respect of – (a) security for costs; … (f) an interim interdict or similar relief; (g) securing the amount in dispute in the reference; … “. [34] This alone should put the debate in this matter about the jurisdiction of the High Court to rest. In its application to that court, Joint Venture sought “an interim interdict or similar relief”, mentioned in section 22(1)(f). The interdictory relief sought was pending the outcome of the main dispute, which had to be determined by way of arbitration. Joint Venture did not attempt to set aside or sidestep the arbitration clause in the contract. It wished to freeze the situation as far as certain moneys were concerned. (Even subsection (1)(g) may arguably enter the picture.) [35] The above approach was followed by this Court in resolving an appeal heard in the same session as this one. In Motsea Pule and 90 Others versus Ministry of Tourism, Environment and Culture and Others (C of A (CIV) 80/2024) Damaseb AJA quoted section 22(1)(f) of the Arbitration Act. He concluded though: “What the employees sought was not a stand alone ‘interim interdict or similar relief’ facilitate an arbitration. They sought interim relief as a precursor to a review application to challenge their dismissals. Whether or not the dismissals were unlawful, is the subject matter of the arbitration clause. The part of the relief seeking an intended to interdict therefore fell outside s 22(1)(f) and was therefore properly declined by the court a quo.” [36] In the judgment by Damaseb AJA reliance is placed on this Court’s judgment in the case of Kompi (C of A (CIV) 34B/2021). That judgment affirms the prominence of arbitration, inter alia regarding public policy. Like Pule, it dealt with an arbitration clause in an employment contract. Independence [37] In so far as it may be necessary or useful to interrogate the remaining issues in this matter, the High Court found that the guarantee agreement involving Standard Bank, who was not a party to the main agreement between the City and Joint Venture and thus not bound by the arbitration clause, was “independent” of the main contract between the City and Joint Venture. The court also used the term “autonomous”. During the hearing of oral argument before this Court, counsel for the appellant stated that it was “independent” from, but “inextricably linked” to the main agreement. [38] The High Court’s conclusion cannot be faulted. Simple logic supports the conclusion that the agreements have to be treated independently, of course depending on the particular circumstances of every case. [39] However, one must be careful with the language used. It might not be wise to describe the guarantee contract as “separate”. Whether it is “autonomous”, I refrain from judging on. That the agreements are “interrelated”, is probably correct. The one would not have been there without the other. That they are “inextricably linked” may not be entirely accurate, once again depending on specific circumstances, including the relief sought. Fraud [40] As to fraud, or an allegation to that effect, the High Court opined that the line between breach of contract and fraud can be very thin. In its above-mentioned (in [19]) conclusion it is stated that it would be absurd to maintain strictly that fraud is the only door open to challenge a call for a guarantee in a court. It would “open the floodgates of abuse”. Earlier in the judgment the “serious misuse of the process” is also mentioned. {41] I respectfully agree., If fraud is the only door to a court in cases when arbitration was agreed on, a reference to fraud will often have to be included in an application, in order to persuade a court that it has jurisdiction. Thus, the meaning of fraud and fraudulent misrepresentations may be expanded far beyond the established understanding of these concepts. Almost any complaint will have to be cast as one about fraud. [42] This case may indeed amount – or almost amount – to being an example of abuse. Joint Venture attempts to persuade this Court (as it did with the High Court) that the City’s allegation to Standard Bank was fraudulent. Although the particular circumstances of cases may lead to inferences of fraud, parties in a contractual dispute often accuse one another of breach of contract. Generally, this represents an opinion, based on their interpretation of the facts, the contract and the law; not to an intentional misrepresentation of facts. [43] The wording in the conclusion of the High Court judgment in paragraphs [32] to [35]) of its judgment ([17] to [20] above in this judgment) is somewhat confusing and open to criticism. After finding – quite strongly - that fraud cannot be the sole requirement for a court’s jurisdiction, it is stated (in [33]): “If (the City) has misrepresented to (Standard Bank) that (Joint Venture) has breached the contract when (it) has not, there is an element of fraud to be investigated.” [44] The first oddity that strikes the reader is the question: How is one to know that Joint Venture has not breached the contract? Whether any of the parties breached the contract is exactly what the arbitrator must investigate. Must a court, in order to consider whether it has jurisdiction, reach a conclusion that an accusation of breach of contract was baseless and thus fraudulent? [45] Adding to the confusion, is the High Court’s conclusion “that (Joint Venture) has successfully satisfied not only the fraud jurisdictional requirements but even the breach of contract requirement”. What is the “breach of contract requirement”? Moreover, was this necessary for finding that the court had jurisdiction, after its own conclusion that the guarantee agreement was to be dealt with independently from the main contract? Conclusion [46] From the Arbitration Act (particularly section 4), as well as case law, the prominence of arbitration is clear. Courts must respect the agreement between parties to resort to arbitration to resolve disputes, as an alternative to litigation. The reference to the “sacrosanctity” of an arbitration does capture the importance of an arbitration agreement, even though the exact legal meaning of this strong term (with religious connotations) is not clear. [47] Section 22(1)(f) provides for a party to approach a court of law for an interim interdict or similar relief. This is what Joint Venture did in this case. [48] Besides the inevitable conclusion following from the above, the High Court – in my respectful view – correctly concluded that the guarantee contract must be treated independently from the main contract. [49] An allegation of breach of contract must be adjudicated through the agreed arbitration. The issue of fraud and the line between it and breach of contract is not only unclear, but irrelevant. It requires no final conclusion in this appeal. [50] Despite the above-mentioned difficulties with aspects of the High Court’s reasoning, I am unable to find any ground to interfere with its conclusion. It did have jurisdiction in the matter before it. Costs [51] The general principle in litigation is that costs must follow the result. There is no reason to depart from it in this case. Footnote [52] It is interesting to note a statement by counsel for the City, from the Bar, in his reply at the end of the oral submissions made to this Court. It was not considered in the determination of the outcome of the appeal. Yet, it ties in with the contents of the first paragraph of this judgment and Kope J's observations about the numerous court battles in the ongoing war between the parties, reflected in paragraph [4] above. Counsel informed us that, while we were debating whether the High Court had jurisdiction in spite of the arbitration clause in the contract, the arbitration proceedings in this matter were already proceeding. Order [53] The appeal is dismissed, with costs. _________________________________ J VAN DER WESTHUIZEN ACTING JUDGE OF APPEAL I agree: ______________________________ KE MOSITO PRESIDENT OF THE COURT OF APPEAL I agree: _______________________________ P MUSONDA ACTING JUDGE OF APPEAL FOR THE APPELLANT: MS RASEKOAI FOR THE RESPONDENT: K NDEBELE ADV KJ KELEPA 16