Hemingways Shopping Centre (Pty) Ltd v PD Naidoo & Associates Consulting Engineers (Pty) Ltd and Another (A5064/2015) [2017] ZAGPJHC 57 (13 March 2017)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG LOCAL DIVISION, JOHANNESBURG)

CASE NO: A5064/2015

Reportable: YES

Of interest to other judges: YES

Revised.

13 March 2017

In the matter between

HEMINGWAYS SHOPPING CENTRE (PTY) LTD APPELLANT

and

PD NAIDOO & ASSOCIATES CONSULTING

ENGINEERS (PTY) LTD FIRST RESPONDENT

DAIRMUID SHORT NO SECOND

RESPONDENT

Review – Arbitration pursuant to agreement of appointment of the arbitrator- Arbitrator’s interlocutory ruling at fifth hearing of arbitration proceedings between the parties - at conclusion of the evidence in chief of appellant’s (claimant’s) expert witness appellant’s legal representative indicated that no further questions would be asked - at the resumed hearing of the arbitration almost a year later -application made to arbitrator for ‘re-opening of evidence in chief’ in regard to procedural procedures including exchange of expert witness reports having occurred since last hearing – arbitrator dismissed the application - appellant unsuccessfully applied to this court for review and setting aside of the ruling.

Appeal - against judgment and order of court a quo - reasoning of court a quo that the application to lead further evidence in chief akin to an application re-opening of a case not followed - legal principles in regard to arbitrator exercising a discretion in particular in regard to interlocutory rulings analysed and applied to facts - held: expediency of the arbitration relied upon by the arbitrator in dismissing the application not justified in view of the history of the arbitration proceedings - arbitrator failed to consider the effect of the interlocutory proceedings on the proper and just adjudication of the disputes between the parties – resultant failure to ensure fair administration of justice – ruling grossly unfair - appeal upheld with costs and ruling by arbitrator substituted with a ruling providing for the continuation of the evidence in chief of the appellant’s expert witness.

JUDGMENT

VAN OOSTEN J:

[1] The issue in this appeal is procedural in nature and concerns the entitlement of a party to proceedings (in this case an arbitration), to proceed with the leading of the evidence of an expert witness in chief, at the resumption of a hearing, in respect of which that party had indicated at the prior hearing, that there were no further questions for that witness. The arbitrator, who is the second respondent, ruled against the appellant in an application made by it at the commencement of the resumed hearing of the arbitration, for the continuation of leading the evidence of the witness in chief (the ruling). The appellant felt aggrieved by the ruling and launched an application to this court for the review and setting aside of the ruling, which came up for hearing before Victor J, who dismissed the application with costs. The appeal is directed against that order and is with leave of the court a quo.

Background

[2] The arbitration proceedings between the appellant, who is the claimant in respect of its claims and the respondent in respect of the respondent’s counterclaim, and the respondent, arise from the construction of a four level building, known as Hemingways

Shopping Mall, in East London. The pivotal issue between the parties in respect of which each side filed expert witness reports, concerned the measurements and calculations relating to the quantity of steel required in the overhang in the structure of the mall, which was the essence of what was referred to as the appellant’s over-design claim (claim 1). The appellant’s claim consists of two claims: claim 1 is for damages resulting from an alleged breach of the appointment agreement by the respondent, in negligently and unprofessionally instructing the main contractor to use more steel in the construction of the mall than what the respondent had allowed for in its rebar instructions given to the quantity surveyors for the purpose of preparing the bills of quantity. Claim 2 is for damages arising from delays in the construction of the mall caused by the respondent. The respondent filed a statement of defence, which was later amended, and instituted two counterclaims, one for payment of professional fees and travelling costs and, the second, for payment of fees for the rendering of civil and structural engineering services in respect of the construction of a bridge at the mall.

[3] The arbitration commenced on 12 March 2010, when the appellant’s statement of claim was issued. On 15 June 2012 the appellant

appointed Mr Arno Ellmer as its expert engineering witness. Two expert reports by Ellmer were filed, referred to as Ellmer 1 (dated 1 August 2012) and Ellmer 2 (dated 28 September 2012).

[4] At the fifth hearing of the arbitration, which was set down for hearing from 15 to 17 October 2012, the appellant presented the evidence in chief of Ellmer, in regard to Ellmer 1 and 2. At the conclusion of the session, on 17 October 2012, the attorney appearing for the appellant indicated that he had no further questions for the witness. The arbitration hearing was postponed to agreed dates for the cross-examination of Ellmer and for the respondent’s experts in response to Ellmer’s evidence in chief, to prepare their own calculations and instruct and advise counsel in regard thereto.

[5] In the event, the arbitration hearing only resumed almost a year later, on 7 October 2013, when the ruling was made. In between these hearings numerous procedural steps of relevance and importance to the issue before this court, were taken, which, briefly summarised are the following.

Interlocutory procedures

[6] On 23 October 2012 the appellant filed a notice of intention to amend its statement of claim by particularising its over-design claim, to which the respondent filed an objection. The application for an amendment was argued and the arbitrator granted leave to amend on 3 Dec 2012.

[7] On 28 February 2013 the respondent delivered a further expert report by Mr RG Huff, a civil and structural consulting engineer, referred to as Huff 3. In Huff 3 a number of erroneous calculations of the volumes of the coffer slabs in the building structure made by Ellmer, as well as Mr JP Theron, a professional quantity surveyor appointed by the appellant as one of its experts, were disclosed and dealt with. The report moreover contained new calculations of which Ellmer had not been apprised of before testifying in chief. In response to Huff 3, both Ellmer (in Ellmer 3, dated 7 June 2013, which in fact was Ellmer’s fourth report) and Theron filed supplementary reports in effect conceding the measurement and calculation errors.

[8] The arbitration hearing was scheduled to continue on 18 March 2013, but stood down for a further meeting of the opposing expert

witnesses. Ellmer had prepared 15 amended spread sheets which were handed to Huff at the expert meeting. A joint minute, dated 22 March 2013, in respect of the expert meetings held on 13 and 19 March 2013, was prepared, signed and handed to the arbitrator. The respondent sought a postponement of the hearing to enable Huff to verify the spread sheets which was opposed. The arbitrator refused a postponement and delivered his fully reasoned award on 4 April 2013. The parties, however, agreed to abandon the postponement award and further that the arbitration hearing would resume on 7 October 2013 until 1 November 2013 and again from 11 to 29 November 2013.

[9] On 26 April 2013 the respondent gave notice of its intention to call Mr R Snowden, a civil and structural engineer, as an expert witness. On 7 June 2013 Ellmer 3 was filed, in which calculation errors were conceded and amended and adjusted calculations in respect of the coffer slabs furnished. On 7 June 2013 Theron’s supplementary report was filed in which the appellant’s over-design claim was quantified in accordance with the amended and adjusted calculations. Snowden’s expert reports dated 4 September 2013 (Snowden 1) and 27 September 2013 followed. Those reports disclosed further errors made by Ellmer and a new issue was raised. In response to Snowden 1 Ellmer, on 27 September 2013, filed a further report (Ellmer 4, in fact Ellmer’s fifth report) together with 15 new spread sheets, in which he conceded that the premise for his calculations was wrong.

[10] In summary Ellmer 3 and 4, in essence, contained concessions as to the incorrectness of measurements and calculations disclosed in Huff 3 and Snowden 1 and resolved the dispute concerning the correct calculation of the volume of internal panels and coffer slabs.

[11] In a letter to the respondent’s attorneys, dated 1 October 2013, the appellant’s attorneys indicated that leave would be sought at the resumed hearing on 7 October 2013 to ‘reopen/proceed with Ellmer in chief’ which found no favour with the respondent’s attorneys, who objected to the appellant’s ‘piecemeal presentation of its case’.

The arbitration hearing on 7 October 2013 and the ruling

[12] Against this chequered background the resumed hearing of the arbitration on 7 October 2013, commenced with the attorney for the appellant seeking leave to proceed with leading the evidence of Ellmer in chief. In the arguments that followed, the arbitrator was fully apprised of all the procedural steps that had occurred since the last hearing on 17 October 2012. The attorney for the appellant referred to the supplementary expert reports that had since come to the fore and in essence submitted that the dictates of a fair trial demanded that these aspects should be dealt with in the further evidence in chief of Ellmar. In contrast thereto, counsel for the respondent in minute detail dealt with the history of the arbitration in support of the contention that the proverbial line should be drawn in order to, as counsel put it, ‘bring an end’ to, albeit halfway through the matter, the appellant constantly shifting the goalposts.

[13] Having heard argument and after a short adjournment, the arbitrator ruled as follows:

‘It was perhaps fortuitous that Huff 3 was filed but in view I take of the matter Mr Ellmer has given his evidence. The fact that he subsequently realised there was an error in his evidence I don’t think entitled the claimant to recall him. So shall we proceed?’

[14] In an affidavit filed in the review application, the arbitrator supplemented his reasons as follows:

‘15. At the conclusion of the hearing on 17 October 2012, the claimant’s expert witness Dr Arno Ellmer was in the witness box. Claimant’s legal representative, Dr Ebersohn announced that he had no further questions for the witness and Adv L van der Merwe (for first respondent) indicated that he would cross-examine Dr Ellmer.

16. The matter was then postponed on the understanding that Adv Van der Merwe would cross-examine the witness at the resumption of proceedings.

17. However, when the proceedings commenced again on 7 October 2013, Dr Ebersohn applied to re-open the examination of Dr Ellmer in order to introduce further evidence. Counsel for first respondent objected. The arguments presented for and against the application are recorded in the written transcript.

18. …

19. I was persuaded by the first respondent’s submissions and concluded that claimant should not be permitted to re-open its case, in effect, to remedy what was perceived by claimant to be shortcomings in the evidence and report filed of record by Dr Ellmer. I decided – in the light of the duration of the matter and the agreed intention of the parties that “the dispute will be determined as quickly as possible” – that claimant should not be allowed to re-open the evidence in chief of Dr Ellmer and thus refused the application.’

Admissibility of the arbitrator’s supplementary reasons

[15] Counsel for the appellant objected to the admissibility of the arbitrator’s supplementary reasons placing reliance on the judgments in Mkwanazi v Van der Merwe and Another 1970 (1) SA 609 (A) 625G-H, and, Thompson v South African Broadcasting Corporation [2000] ZASCA 76; 2001 (3) SA 746 (SCA) 748G-749D. In my view the cases relied on are clearly distinguishable from the present matter. The arbitrator quite obviously gave very brief reasons for disallowing the presentation of further evidence in chief, quite understandably so, as this was an interlocutory application in a trial that was to proceed. The subsequent reasons of the arbitrator merely supplement the nebulous reasons furnished at the hearing and in no way vary or contradict what was then said. The objection accordingly fails and I will revert to these reasons later in the judgment.

The judgment of the court a quo

[16] In the judgment of the court a quo (paragraphs 43 – 46 thereof) the considerations and principles applicable to and derived from a number of decided cases regarding an application of the re-opening of a case, were extensively quoted and heavily relied on. I do not consider it necessary to review those principles save to remark that the approach adopted by the learned judge in the circumstances of this case, was wrong. In the judgment on the application for leave to appeal the learned judge acknowledged that the references in the judgement to re-opening of cases was in error, as was the ‘comment that Mr Ellmer’s evidence would not ‘bring an end to the case’ when in fact the context is that the evidence would not curtail or be dispositive of the ambit of Mr Ellmer’s evidence because I found that the applicant’s approach to amendments has no boundaries’. I am unable to agree with the learned judge a quo that ‘in assessing these errors they were not central to my decision on review media res (sic)’. In my view the real issue for determination by the court a quo, clearly became obfuscated by the errors that were made.

[17] The learned judge a quo further held that interference with the arbitrator’s ruling by the court would not be appropriate as the parties had chosen the arbitrator who had considerable and admirable expertise in matters of this kind, that no level of

unfairness in regard to the ruling was discernable and, finally, that a ‘limit had to be placed on the applicant’s ever evolving claim’. As will become apparent from the reasons I will presently set out, I am unable to agree.

[18] Counsel for the respondent readily, and in my view correctly, conceded that the premise of the approach adopted by the learned

judge a quo, to which I have referred, cannot be endorsed by this court. I do not consider it necessary to further deal with the

judgment save to remark that this court is now enjoined to consider and adjudicate the issue afresh.

Discussion

Legal principles

[19] The appropriate point of departure and decisive of this matter, is the question whether the arbitrator properly exercised his discretion in refusing the further leading of Ellmer’s evidence in chief. Although the agreement of appointment provides for the arbitrator’s exercising the ‘fullest and freest discretion with regard to the proceedings’ the principle remains that the discretion must be exercised judicially (Cf SA Transport Services v Wilson 1990 (3) SA 333 (W) 340 C-D). In the exercise of that discretion the arbitrator is enjoined to observe the principles of natural justice and fairness (2 Lawsa 3 ed para 108). These principles, in the context of a corruption charge heard by an Inquiry Board:

‘…do not require a domestic tribunal to follow the procedure and to apply the technical rules of evidence observed in a court of law, but they do require such tribunal to adopt a procedure which would afford the person charged a proper hearing by the tribunal and an opportunity of producing his evidence and of correcting or contradicting any prejudicial statement or allegation made against him (Marlin’s case, supra at p.126 [Marlin v Durban Turf Club and Others 1942 AD 122]; Bekker v Western Province Sports Club (Inc.) 1972 (3) SA 803 (C) at p.811). The tribunal is required to listen fairly to both sides and to observe “the principles of fair play”.’

(Per Botha JA in Turner v Jockey Club of South Africa 1974 (3) SA 633 (A) 646F-H)

[20] Finally, the concept of fairness, one of the core values of our Constitution, has been entrenched in the interpretation of

arbitration agreements by the Constitutional Court in Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another 2009 (4) Sa 529 (CC) para [221].

[21] In regard to interim rulings, such as we are here concerned with, a court will only interfere by way of review with the arbitrator’s

conduct in the proceedings if such conduct was either grossly irregular or contrary to natural justice (Anshell v Horwitz 1916 WLD 65 at 675; and in regard to the court’s supervisory function in regard to arbitration proceedings, see Theron en Andere v Ring van Wellington van die NG Sendingkerk in Suid-Afrika en Andere 1976 (2) SA 1 (A) 21D-23D).

Legal principles applied to the facts

[22] It is at the outset necessary to consider the precise nature of the request in respect of which the ruling was made. Counsel for the respondent sought to elevate the request to a formal application, in respect of which certain requirements had to be met. The contention is seemingly without merit. The request was merely for the continuation of the evidence in chief of the expert witness. The futility of the arguments raised by the respondent, to which I shall revert, is best illustrated if consideration is given to the effect and importance of the words ‘no further questions to this witness’ (the indication) at the conclusion of both his evidence in chief and the session set aside for the hearing. Had the indication not been given, the continuation of the evidence in chief of the witness at the resumed hearing, without more, could not and would not have caused any procedural complications. The respondent however, seized the opportunity in attributing unjustified and irrelevant prominence and effect to the indication, triggering an objection fully argued before the arbitrator whose ruling became the subject matter not only of the subsequent review application but also now, almost 4 years since the date of the ruling, this appeal.

[23] The arbitrator’s main concern in refusing the request was the speedy determination of the issues. The reasoning, if considered

against the history and in particular the duration of the arbitration proceedings, in my view, appears anomalous. By the time the ruling was made the arbitration proceedings had reached its fifth hearing, after numerous delays had occurred over a period of almost four years, resulting from amendments, the filing of expert reports and the hearing of seven opposed interlocutory applications. There is indeed nothing to indicate that the parties intended to expedite the matter: as I have alluded to, they chose and agreed on resumption dates well into the future.

[24] The remainder of Ellmer’s evidence in chief, we were informed, was of expected short duration and would not have caused an unreasonable delay in the finalisation of the arbitration hearing. In this regard it must be remembered that the respondent was already in possession of Ellmer’s subsequent reports, which were filed in response to expert reports filed by the respondent, and, moreover, their practical effect of having eliminated disputes between the parties concerning the correctness of calculations. The hearing in any event, by agreement between the parties, was scheduled to continue for at least another 5 to 6 weeks.

[25] In these circumstances time could not have been of the essence in deciding the request. The arbitrator’s reasoning in regard to and reliance on the determination of the dispute ‘as quickly as possible’, accordingly, was not only irrelevant but also unfair and thus grossly irregular.

[26] It remains to deal with the supplementary reasoning of the arbitrator. The arbitrator’s remark that Ellmer ‘subsequently

realised’ that there was ‘an error in his evidence’ and that this disentitled the appellant to ‘recall’ him, was not only factually wrong but also overlooked the nature and import of the procedural steps that had occurred since the adjourned hearing. Again, in the supplementary reasons the arbitrator equates the request to an application for the ‘re-calling of the witness’ or the ‘re-opening of the case’, which as I have alluded to, is misconceived.

[27] The arbitrator moreover failed to deal with any of the considerations I will presently deal with. I am accordingly constrained to hold that the arbitrator has failed to exercise any discretion in the ruling that was made.

[28] The enquiry, of course, does not end there. The next question arising is whether any circumstances existed at the time the ruling was made, which would have justified the exercise of a judicial discretion to refuse the request. In this regard it is necessary to consider and deal with the arguments advanced in this court by counsel for the respondent.

[29] Counsel studiously and painstakingly referred to, analysed and fully argued the merits of almost each and every interlocutory application and other procedural step that was taken in the arbitration proceedings, in support of the conclusion arrived at which, in summary is that, in the proper context of the history of the matter and the conduct of the appellant over an extended period of time, it would be undesirable, if not practically impossible, for this court to interfere with the manner in which the arbitrator has exercised his discretion. In particular counsel argued that the appellant caused the launching of unnecessary opposed applications to compel disclosure of particularity concerning the over-design claim; that the appellant’s conduct was ‘obstructive and evasive’ concerning its over-design claim; that it had failed to utilise and in fact abused ‘the series’ of indulgences granted to it by the arbitrator to properly present its case; that the appellant’s over-design claim was ‘grossly inflated’ and based on erroneous expert reports which were filed in an attempt to surprise and ambush the respondent. I do not consider it necessary to delve any further into the arguments advanced, save to remark that they are misconceived in their premise and in any event devoid of any merit.

[30] The edifice ascending from counsel’s argument crumbles at the irrelevance thereof in adjudicating the issue. Each opposed

interlocutory application was ruled on by the arbitrator. No conceivable reason exists for this court to re-visit those applications as to the merits thereof. The parties are bound by the rulings of the arbitrator and they accordingly were compelled to conduct their case in accordance therewith. The contentions raised concerning the merits of the appellant’s claim are not only premature, but also improper. The arbitration hearing has notably hardly left the starting blocks and counsel’s contentions, if in any way meritorious, should be reserved for presentation at the end of the arbitration hearing. I am inclined to agree with counsel

for the appellant: the respondent is seemingly snapping at the bargain in an attempt to persuade this court to revisit the rulings

made by the arbitrator, to comment on the merits of the appellant’s over-design claim and to pre-empt aspects that the arbitrator will be required to decide at the conclusion of the hearing.

[31] The considerations applicable to the arbitrator’s exercise of his discretion are in summary the following. Counsel for the respondent, who also appeared in the arbitration hearing, assured this court that the adjournment of the hearing on 17 October 2012 was on the mutual understanding that the parties would exchange supplementary expert reports. And, this is precisely what happened: Huff 3 was filed in response to Ellmer’s evidence in chief and triggered the procedural steps I have alluded to. The arbitrator in fact actively partook in the further developments in directing a further meeting of experts, at the hearing on 18 March 2013. The nett effect thereof was that concessions were made and existing issues eliminated or narrowed down. Put differently: the scene in regard to the continued hearing had substantially changed. In refusing the leading of Ellmer’s further evidence in chief, concerning those events, the arbitrator, in effect, closed the door in regard to the hearing of all relevant evidence in regard to, including, in particular, Theron’s quantification of the appellant’s over-design claim.

[32] Counsel for the respondent conceded that the ruling had the startling practical effect of bringing the appellant’s over-design claim to an end, thus before finalisation of the arbitration. I do not consider it necessary to comment any further save to remark that for this reason alone, the ruling cannot stand.

[33] The arbitrator, in the just and fair hearing of the matter, was in duty bound to allow the leading of the further evidence (Cf Body Corporate Houghton Villas v GOT Construction (Pty) Ltd 2002 (1) SA 760 (W) 761 C-D). A proper and just adjudication of the issues without having affording Ellmer the opportunity to testify in regard

to the interim events, in my view, was plainly unattainable, and in any event, would have resulted in irreparable prejudice to the parties and, therefore, constituted a failure to ensure the fair administration of justice (Houghton Villas 762 E-0G).

[34] For all these reasons I conclude the ruling was grossly unfair and that it accordingly falls to be set aside.

Order

[35] In the result the following order is made:

1. The appeal is upheld.

2. The order of the court a quo is set aside and replaced with the following:

1. The second respondent’s ruling in the arbitration proceedings between the parties, on 7 October 2013, is reviewed and set aside and substituted with the following ruling:

‘The claimant is granted leave to proceed with the examination in chief of the witness, Arno Ellmer, as envisaged in the rule 36(9) notice of the claimant, dated 27 September 2013.’

2. The first respondent is to pay the costs of the application.

3. The first respondent is ordered to pay the costs of the appeal.

_________________________

FHD VAN OOSTEN

JUDGE OF THE HIGH COURT

I agree.

__________________________

Z CARELSE

TP MUDAU

COUNSEL FOR APPELLANT

ADV FJ BECKER SC

APPELLANT’S ATTORNEYS

GERRIE EBERSÖHN ATTORNEY

COUNSEL FOR 1ST RESPONDENT ADV LJ VAN DER MERWE SC

1st RESPONDENT’S ATTORNEYS

NORTON ROSE FULBRIGHT SOUTH AFRICA

DATE OF HEARING

6 MARCH 2017

DATE JUDGMENT

13 MARCH 2017