Irwing Construction 514 CC v Pienaar and Others (62030/12) [2015] ZAGPPHC 850 (18 December 2015)

IN THE REPUBLIC OF

SOUTH AFRICA

GAUTENG DIVISION,

PRETORIA

Date of hearing: 25 May 2015

Date of judgment: 18 December 2015

Case Number: 62030/12

In the matter between:

IRWING CONSTRUCTION 514 CC Applicant

and

J LE F PIENAAR First Respondent

C H BOTOULAS Second Respondent

S B BOTOULAS Third Respondent

JUDGMENT

A B ROSSOUW A J

(1) This is an application for the review and setting aside of an arbitrator's interim award dated 6 September 2011 and his final award dated 10 August 2012 and for the review and setting aside of the totality of the arbitration proceedings.

(2) The purpose of the arbitration was to resolve a number of disputes that had arisen from a construction agreement which the second and third respondents concluded with the applicant during 2004.

(3) The hearing of the arbitration proceedings took place on 14 to 16 July 2010, 30 to 31 August 2010, 26 to 28 July 2011, 22 August 2011, 8 to 7 March 2012, 16 May 2012 and 18 July 2012 and the application for review comprises well over two thousand pages.

(4) The history of this matter is, very briefly, the following:

(5) On 10 September 2004 the applicant (Irwing Construction 514 CC - henceforth referred to as ‘the contractor') and the respondents (Dr Botoulas and Miss Watson- (now Mrs Botoulas) - henceforth jointly referred to as ‘the employer’) entered into a written agreement (a JBCC Series 2000 agreement) for the construction of a Tuscan-style house in Chartwell, Johannesburg North for a contract sum of R2 214 429.06.

(6) The employer appointed Anton Richter Architects CC as his agent in terms of the agreement.

(7) The construction period started on 10 September 2004 as per the agreement. The contractor commenced with its work during or about October 2004 and the employer reluctantly took occupation of the house about a week or so before 25 December 2005.

(8) After the employer had taken occupation, the employer started complaining about numerous defects in the contractor’s work and the contractor’s failure to rectify same.

(9) On 23 October 2006 the employer, through his attorney, cancelled the agreement.

(10) The claimants issued summons against the contractor and the agent out of the Gauteng Local Division of the High Court (as it is now known) under the case number 07/4125.

(11) The matter was subsequently referred to arbitration and the aforesaid action was (and still is) stayed pending the outcome of the arbitration.

(12) The parties appointed an arbitrator (the first respondent) and agreed to a separation of quantum and merits. The parties agreed that the merits be arbitrated first and thereafter the quantum. The merits involved the question as to whether the employer validly cancelled the agreement in terms of the agreement, and, if not, whether the contractor repudiated the agreement and, if so, whether the employer cancelled the agreement by the acceptance of the contractor’s repudiation. The issue as to whether the defects complained of had been rectified by the contractor when the agreement was cancelled formed part of the merits.

(13) On 6 September 2012 the arbitrator made an interim award regarding the merits and a portion of the quantum. The latter award was based on a joint report of the parties’ experts which contained an agreement regarding some defects and the figures to rectify same.

(14) The contractor perceived the arbitrator’s conduct during the proceedings as being biased and brought an application in terms of rule 8 of the Rules of Conduct of Arbitrators

(Fifth Edition) to the Chairman of the Association of Arbitrators for the removal of the arbitrator.

(15) The application for the recusal of the arbitrator was not brought to finality. There is a dispute between the parties as to the present status of this application.

(16) The arbitration continued on the quantum and on 14 September 2012 the final award was made.

(17) The contractor brought an application against the arbitrator and the employer to have both awards including the totality of the arbitration proceedings set aside on the following grounds:

1. During the course of the evidence given on behalf of the employer and in particular the evidence of the expert, the arbitrator became biased in their favour and which resulted in an application for recusal, which has not been finalised;

2. The arbitrator grossly misdirected himself by making interim awards on the issue of quantum whilst the issue of quantum and merit had at that stage still been separated and not all evidence heard;

3. The arbitrator grossly misdirected himself on the nature of the dispute before him;

4. The arbitrator grossly misdirected himself regarding the issue of the calculation of a final payment;

5. The arbitrator grossly misdirected himself in dealing with the aforementioned issue by refusing an amendment allowing for the defendant’s calculations of the amount due as a counterclaim and failing to consider this issue as one of set-off;

6. the arbitrator grossly misdirected himself by having regard to the relevant evidence and considerations and disregarding relevant evidence and considerations;

7. the arbitrator grossly misdirected himself in accepting certain evidence and simply ignoring other evidence without having made any credibility findings or laying a basis for the aforesaid;

8. the arbitrator made so many misdirections that cumulatively they amount to ‘misconduct’ and grossly unreasonable conduct as provided for in section 33 (1) of the Arbitration Act 42 of 1965, resulting in the arbitration proceedings and awards to be set aside on the Arbitrations Act and/or the Common Law’.

(18) The arbitrator does not oppose the application.

(19) The contractor filed his replying affidavit almost a year late in respect of which the employer seeks condonation. This application is opposed.

(20) There is also a point in limine taken by the employer that the application for the review and setting aside of the arbitrator’s interim award is late and that it should have been brought within six week after the interim award was published in terms of s 33(2) of the Arbitration Act 42 of 1965 (‘the Act’).

(21) Regarding the application for condonation, the following:

(22) The employer’s opposing affidavit was served on 30 November 2012. The replying affidavit was only delivered on 18 November 2013, i.e. almost a year out of time. The contractor’s explanation for the delay is, in short, that the senior counsel who was involved in the arbitration proceedings was instructed to prepare the draft replying affidavit, that the employer’s attorneys contacted him every ten days or so, that senior counsel time and again promised that he would attend to the replying

affidavit until about October 2013 when senior counsel informed his attorneys that due to his workload he was not getting to the

finalisation of the replying affidavit and that the appointment of junior counsel should be considered. This was communicated to the employer’s attorneys and junior counsel was briefed to finalise the replying affidavit. The reasons why the specific senior counsel was kept on brief for such a long period was primarily based on financial and practical considerations. Save for stating that the employer’s attorneys contacted the senior counsel every ten days or so and that the said counsel time and again promised that he would attend to his brief, the delay between November 2012 and October 2013 is in my view unreasonable and that no good cause has been shown in terms of Uniform Rule 27(3). In the light hereof, I am not inclined to grant the application for condonation. This means that the contents of the replying affidavit cannot be taken into consideration.

(23) Regarding the point in limine, the following:

(24) In terms of s 33(2) of the Act an application for the setting aside of an award on the grounds mentioned in s 33(1) thereof, ie misconduct, gross irregularity, exceeding of powers and improper obtainment of an award, must be made within 6 weeks after the publication of the award. Different periods apply where the award is requested to be set aside on the grounds of corruption, which I find unnecessary to deal with.

(25) Section 1 of the Act defines an award as including an interim award and s 31 of the Act stipulates that an award may be made an order of court and may be enforced in the same manner as any judgment or order to the same effect.

(26) The interim award, which is a reasoned award, was given on 6 September 2011.

(27) If one looks at the interim award, it only contains the reasons of the arbitrator. It does not contain an award in the form of an order declaring the agreement to be validly cancelled and/or directing the contractor to pay a sum of money to the employer. If one reads the interim award, it is clear that the arbitrator merely decided that the agreement was validly cancelled and that certain aspects regarding the quantum of the employer’s claim need not to be proved in the subsequent phase of the arbitration and that any award to be made in future would be based on these findings. In his final award that was given on 10 August 2012 the arbitrator says exactly that: ‘On 2011-09-26 I issued an interim award that forms part of this award.’ He then proceeded by repeating his determination contained in the interim award verbatim in the final award. The only award proper that was ever made is contained in paragraph 18 of his final award in terms whereof the

contractor is ordered to pay certain sums to the employer. This award is obviously based upon the arbitrator’s decision contained in his interim award that the employer validly cancelled the agreement. The arbitrator’s decision contained in the interim award regarding part of the quantum was only transformed into an award in paragraph 18.1 of the final award. In this paragraph the contractor is ordered to pay the employer an amount of R412 850.85, which amount includes the amount of R192 265.00, the composition of which is contained in his interim award. Furthermore, if his interim award is compared to his final award, it is clear that the arbitrator never intended to make any award prior to the final award: The arbitrator’s final award contains a clear award comparable to an order of Court, whereas the interim award does not. This is strengthened by the fact that the arbitrator couched the interim award in a form that would not make it susceptible to be made an order of court in terms of s 31 of the Act.

(28) By reason of the foregoing, the point in limine is dismissed.

(29) I now turn to the merits of the application.

(30) Section 33(1) of the Arbitration Act 42 of 1965 (‘the Act’) stipulates as follows:

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

(31) To the extent that the contractor seeks to have the contractor’s decision reviewed under the common law as stated in his eighth ground for review, the following: There is no common law review under arbitration law, nor can the contractor rely on any administrative common-law review ground. (Telcordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 (SCA) para 59). The contractor is limited to the grounds in terms of s 33 (1)(Amalgamated Clothing & Textile Workers Union v Veldspun Ltd [1993] ZASCA 158; 1994 (1) SA 162 (AD) 169D).

(32) Although the contractor in his founding affidavit does not state which particular sub-sections he relies upon in respect of each ground, it appears as if he is mainly relying on (a) and the first ground in (b), namely gross irregularity. The second ground in (b) and the ground in (c) are not part of the contractor’s case.

(33) To the extent that the contractor relies on (a), the following: The contractor alleges in his founding affidavit that the arbitrator was biased. In this regard the contractor alleges that the arbitrator had no experience, knowledge and expertise on the subject matter, the he allowed one of the experts of the owner to lecture him during the proceedings, that he allowed the said expert to give evidence beyond the scope of the proceedings, that he allowed the employer’s expert to give hearsay evidence, that he was unduly impressed by the employer’s expert, that he accepted the said expert’s evidence and that he paid little or no attention to the expert of the contractor, all of which were perceived by the contractor as impartiality or bias on the part of the arbitrator.

(34) In Amalgamated Clothing & Textile Workers Union v Veldspun Ltd at 169C-E the following was said:

As to misconduct, it is clear that the word does not extend to bona fide mistakes the arbitrator may make whether as to fact or law. It is only where a mistake is so gross or manifest that it would be evidence of misconduct or partiality that a court might be moved to vacate the award: Dickenson & Brown v Fisher’s Executors 1915 AD 166 at 174-81. It was held in Donner v Ehrlich 1928 WLD 159 at 161 that even a gross mistake, unless it establishes mala fides or partiality, would be insufficient to warrant interference.

(35) Assuming, without deciding, that the arbitrator did make all of the mistakes as alleged and that these mistakes were gross mistakes, I am not persuaded that his mistakes were so gross as to establish partiality or mala fides or conduct involving dishonesty or moral turpitude or any other improper conduct on the part of the arbitrator. Furthermore, an arbitrator’s lack of experience, knowledge and expertise on the subject matter per se does not constitute misconduct in terms of (a), nor can it in itself constitute a ground for review in terms s 33(1). This much is clear from a plain reading of the section.

(36) That leaves me with the first ground in (b), namely whether the arbitrator committed a gross irregularity in the conduct of the arbitration proceedings.

(37) The contractor raises a number of grounds, but for the reasons that follow, I shall confine myself only to the question as to whether, in the words of the contractor, ‘the arbitrator grossly misdirected himself on the nature of the dispute before him’.

(38) In Goldfields Investments Ltd v City Council of Johannesburg 1938 TPD 551 it was held that the term ‘gross irregularity’ encompasses the case where a decision-maker misconceived the whole nature of the inquiry or his duties in connection therewith. This principle has been generally accepted by our courts (See Telcordia at paras 71 and 72 where this principle was discussed and explained with reference to the case law).

(39) Where the legal issue is left for the decision of the functionary any complaint about how he reached his decision must be directed at the method employed in reaching the decision and not the result. This is known as the Doyle v Shenker principle. If, for instance, a decision-maker has to interpret a document and he interprets it wrongly, it cannot be said that the wrong interpretation prevents the decision-maker from fulfilling his duties or from considering the matter left to him for decision. On the contrary, in interpreting the document the decision-maker is actually fulfilling the function assigned to him and it follows that his wrong interpretation of the document cannot afford any ground for review by the Court. This differs from the Goldfields principle which grants a ground for review where a wrong interpretation by the decision-maker of his function leads to the decision-maker not directing his mind to the issue which was his duty to decide. (See Telcordia par 75 and 76 where this is explained).

(40) The Goldfields principle and the Doyle v Shenker principle are not mutually exclusive: If the arbitrator does not fall foul of the Goldfields principle, the Doyle v Shenker principle applies. (Telcordia para 78).

(41) In order to decide whether the present case falls within the purview of Goldfields or Doyle v Shenker, a good starting point will be the arbitrator’s terms of reference, in other words, the nature of the disputes that were referred to the arbitrator for determination. These disputes are defined in the employers’ statement of claim read with the contractor’s statement of defence.

(42) The employer’s statement of claim regarding the cancellation of the agreement is, to say the least, unsatisfactory in a number of respects:

(43) In paragraph 7 of his statement of claim the employer alleges six forms of breaches committed by the contractor. Save for the vagueness of these allegations, not one of the alleged breaches is connected to a specific clause in the agreement, which makes it difficult to ascertain which clause or clauses are alleged to have been breached and how exactly they were breached: Firstly, the employer alleges that the contractor breached the agreement in that practical completion was never obtained. In terms of clause 7.1.10 of the agreement the contractor was obliged to bring the work to practical completion on or before a date mentioned in the schedule to the agreement. The blank space in the schedule for the date on or before which practical completion had to be obtained was not filled in. The statement of claim contains no allegations in this regard. Moreover, the process towards practical completion is

set out in clause 9 of the agreement, which clause imposes obligations on both the agent and the contractor. The statement of claim contains no facts indicating why the contractor, and not the agent, should be blamed for practical completion not being obtained.

Secondly, it was alleged that the contractor abandoned the building works. Only desertion or abandonment of the contract without lawful excuse amounts to a breach of the agreement. No factual basis is set out with reference to a specific clause or clauses as to why the contractor’s alleged abandonment was without lawful excuse. Thirdly, the owner alleges that the contractor’s work contained various defects and that it was not executed in a professional and workmanlike manner. This in itself is not a breach in terms of the agreement. A defect is defined in the agreement as an aspect of the work which, in the opinion of the agent (not in the opinion of the employer or a third party), is not in accordance with the agreement. Furthermore, clause 9 of the agreement contains a detailed procedure to be followed in the case of defects. Thus, a defect or substandard work per se does not constitute a breach - it merely sets the agreed process in motion. It is the failure to remedy the breach after due demand in terms of the agreement that constitutes the breach. Paragraph 7 does not contain any factual allegation with reference to the relevant clause or clauses substantiating a breach by the contractor in this regard. Fourthly, the owner alleges that the contractor failed to obtain certain certificates, without reference to a specific clause. The clause apparently relied upon is clause 7.1.5. There is no allegation that these certificates were indeed required by the relevant authorities and, if so, whether the contractor was contractually obliged to pay for these certificates. Lastly, the employer alleges that the contractor breached the agreement by withdrawing retention moneys. Again, this alleged breach is not linked to a specific clause.

(44) If one reads paragraph 8 of the statement of claim, it appears as if the basis for the cancellation of the agreement was in essence the contractor’s non-compliance with certain instructions received from the agent and not the alleged breaches mentioned in paragraph 7 of the statement of claim. This poses the question as to the relevancy of the alleged breaches mentioned in paragraph 7.

(45) In paragraph 8.1 of his statement of claim the employer alleges that certain instructions were issued by the agent, without giving any indication as to whether these instructions were issued in terms of the agreement and, if so, in terms of which clause or clauses of the agreement and whether these instructions were in writing as is required in terms of the agreement. In paragraph 8.2 the employer alleges that the agent issued a written demand dated 16 March 2006 for the contractor to comply with his obligations before a certain date. A copy of the demand is attached to the statement of claim. (The contents of this letter is quoted below). It is uncertain in terms of which clause of the agreement this letter was issued. The letter appears be a contract instruction in terms of clause 6.2.12 read with clause 9.3.2 of the agreement. In paragraphs 8.3 and 8.4 the employer alleges that the contractor did not comply with the demand as a result of which the employer cancelled the agreement by notifying the contractor as such in writing through its attorney on 23 October 2014. (The contents of this letter is quoted below). Again, no reference is made in terms of which clause the agreement was cancelled. Furthermore, the agreement contains a clause 15, which specifically deals with the situation where the employer cancels the agreement. In terms of clause 15.1.3 the employer may

cancel the agreement where the contractor fails to comply with a contract instruction issued in terms of clause 6. If the employer decides to cancel the agreement in terms of clause 15.1, the agent shall notify the contractor in writing of the employer’s intention to cancel should the default continue for seven calendar days after receipt of the notice. The letter of the attorney dated 23 October 2014 attached to the statement of claim is not on all fours with the agreed notice. Firstly, it was not given by the agent in writing and secondly, it did not give the contractor notice that the agreement would be cancelled should the default continue for seven calendar days. It is trite law that where a party wishes to enforce a cancellation clause, the conditions for its implementation

must be strictly followed. The termination of an agent’s mandate is no excuse for not complying with these terms, because the employer is contractually obliged to have an agent appointed at all relevant times in terms of clause 5.1.8 of the agreement.

(46) The statement of claim regarding the basis and quantification of the employer’s claim can only be describe as an arcane muddle:

(47) The employer claims an amount of R1 574 160 in respect of the costs to remedy the defects mentioned in the statement of claim and the costs of obtaining certain certificates plus an amount of R451 462.13 in respect of payments made in excess of the contract sum as adjusted by the employer.

(48) These claims appear to be an independent claim for damages rather than a claim in terms of clause 15.2 of the agreement. Clause 15.2 sets out the procedure to be followed where the employer cancels the agreement. This clause survives the agreement where the agreement is cancelled by the employer and the parties’ rights subsequent to the cancellation by the employer can only be governed by these terms. Clause 15 stipulates that after cancellation of the agreement the agent shall prepare and complete the final account within 30 working days and the agent must issue a final payment certificate, which is defined in the agreement as a document certifying the amount due and payable by the contractor to the employer or vice versa. Without this document no payment can be claimed. Clause 15 further provides for the appointment of direct contractors to complete the works and it further stipulates that the employer may, instead of any penalty that could be levied in terms of the agreement, recover expenses and losses resulting from the cancellation. These items must be included and quantified by the agent in the final payment certificate. Clause 13.7 stipulates that the agent shall include in the payment certificate amounts due to the employer for work done by a direct contractor, penalties levied as well as expenses and loss incurred due to default by the contractor on cancellation of the agreement in terms of clause 15. Only the items mentioned in the agreement may be included in the final account and the final certificate.

(49) Thus, the agreement contains a neat framework within which the contractor’s default must be dealt with and it provides a detailed basis upon which the employer’s claim should be quantified and to which the parties are bound. Should a party take issue with certain or all items contained in the final account and/or the final certificate, he can follow the procedure set out in the agreement to have those issues referred to arbitration.

(50) In paragraph 14 of his statement of claim the employer attaches a final account apparently in lieu of the final account envisaged in the agreement, which account does not make provision for the remedying of defects. As alleged by the employer, this statement of account is not the account envisaged in the agreement. This statement is in my view nothing but the employer’s own calculation of the amount of damages that is owed to him. In paragraph 19 of the statement of defence the validity of the

statement of account is denied.

(51) From the aforesaid it is clear that the employer in his statement of claim blows hot and cold. On the one hand he alleges that the contractor breached the terms of the agreement which justified him to cancel the agreement in terms of clause 15, but on the other hand he demands payment of an amount based on his own calculations and ignores the procedure laid down in clause 15 and the requirement of a final payment certificate as a precondition for payment.

(52) Furthermore, in paragraph 8 the employer alleges in the alternative that the defendant repudiated the agreement, which repudiation the employer accepted. If the agreement was cancelled by the acceptance of the contractor’s repudiation, then the agreement and all its terms, including the provisions of clause 15, are no longer in esse, save for perhaps the arbitration clause, and in which event the innocent party must calculate his damages. It is hard to figure out whether the calculation contained in the statement of claim is a calculation in lieu of the final account mentioned in the agreement or whether it is a calculation for damages or whether it is a hybrid between the two. In any event, it is very confusing.

(53) Although the employer’s claim was everything but clear, the arbitrator’s terms of reference, in other words the issues he had to decide, was quite clear, namely whether the agreement was cancelled in terms of the agreement, in other words, whether the employer was entitled to cancel the agreement in terms of clause 15 and, if the agreement was not cancelled in terms of clause 15, whether the contractor repudiated the agreement and, if so, whether the contractor accepted the repudiation. To the extent that the statement of claim was unclear and lacked the necessary averments to substantiate a cause of action, nothing prevented the employer to place all the required evidentiary material before the arbitrator to cover the holes in the statement of claim in order to prove a valid cancellation, especially in the light of the fact that the contractor never raised any objection to the manner in which the statement of claim was formulated.

(54) I shall now deal with the arbitrator’ interim and final awards in order to decide whether the arbitrator committed a gross irregularity as envisaged in s33(1)(b), in other words whether the arbitrator misinterpreted his function and, if so, whether it caused the arbitrator not to direct his mind to the issues he was duty bound to decide.

(55) In par 1 of the interim award the arbitrator says the following: ‘The first phase would deal with the merits of the matter, ie whether and in which respect(s) the [contractor] is liable’. Thereafter, depending on the outcome of the first phase, the second phase, dealing with the quantum, would take place.’

(56) After dealing with the evidence relating to the defects and the various so-called snag lists received by the contractor, the arbitrator quoted the agent’s letter dated 16 March 2006. This is the agent’s demand referred to in paragraph 8.2 of the statement of claim, which demand I have already referred to above. It reads as follows:

‘Subsequent to a site meeting held with [the employer] Monday (13/03/2006) at above-mentioned residence it was noted that a number of outstanding items handed to you on the 14th of February 2006 have still not been attended to or are not acceptably rectified. The one week given to you to attend to these items are long past. I have convinced the client [the employer] to allow you once more to complete the work before the 24th of March 2006 failing which we will have no alternative but to appoint another contractor to do the work at your cost.

This work has dragged on for months and the client was very lenient and accommodating.

As previously instructed strict supervision must be applied at all times. Please consider the privacy of the owners. Take care not to mess on the carpets.

Attached find the list of items to be attended to.’

(57) Paragraph 14 of the reward reads as follows:

After [the employer’s expert] had made his report available, [the employer] cancelled the agreement in writing by means of a letter dated 2006-10-23, from attorneys Meyer and Mahuntsi to the [contractor], inter alia, in the following terms (numbering omitted):

As you are aware, we act on behalf of [the employer] (‘our client’) who contracted with [the contractor] for the building of their home at 211 Sandringham Street, Chartville, Johannesburg North.

We are instructed that in breach of the agreement you inter alia:

• withdrew monies from the retention fund despite the fact that no practical completion certificate has as yet been issued;

• failed to comply with a reasonable contract instruction from the agent in that you failed to remedy the defects listed in the agent’s fax dated 16 March 2006;

• failed to continue work on site without reasonable cause for more than 14 calendar days;

• failed to complete the work in proper and workmanlike manner;

Our client has obtained an independent expert’s report which estimates the cost to remedy the defects in your building works at approximately R1 127 000-00.

By your letter dated 25 May 2006 as well is your actions subsequent, we are of the view that you in any event cancelled the agreement, alternatively repudiated it, which repudiation is hereby accepted.

Insofar as the agreement has not yet been cancelled either by your letter or the agent’s letter dated 16 March 2006 as a result of your non-compliance therewith, our instructions are to cancel the agreement, which we hereby do.

(58) Paragraph 15 of the interim awards reads as follows:

I am satisfied (apart from the issue whether the [contractor] had repudiated the agreement and whether the repudiation had been

accepted by the [employer], should acceptance of a repudiation by the [employer] be a necessary element to found rescission) that the contract was cancelled in terms of the letter dated 2006-10-23. Various alleged breaches of the contract were listed in the letter of 2006-10-23 as well as in the [employer’s] Statement of Claim. I need not address all the alleged grounds. It is clear, despite the [contractor’s] attention to some of the problems raised in various snag lists, that there were still serious defects after the snag list of 2006-03-16 had been issued by the Agent. [The employer's expert] visited the house during June/July 2006, and found the defects as stipulated in his report. All these alleged defects as stated by [the employer's expert] have not survived the joint exercise of the two experts, but in terms of the joint report there were still many serious defects as set out in the concluding paragraph (the determination) of this interim award that entitled the [employer] to have cancelled the contract and to claim payment in respect of the defective work.

(59) In paragraph 16 of the interim award the arbitrator reached the following conclusion:

‘There was thus a material breach by the [contractor] of an essential obligation of the [contractor]. The arbitrator then proceeded to quote the work of Finsen, The Building Contract (A Commentory on the JBCC Agreements) and Christie, The Law of Contract in South Africa, where it deals with a party’s right to cancel an agreement where the breach goes to the root of the contract. He then proceeded to say the following: ’In the instant matter there has been a breach of an essential term, and the breach is major as appears from the "Joint Expert’s Report”, as referred to in the determination of this award.

(60) In paragraph 17 of the interim award, the arbitrator stated the following: ‘But apart from the fact that the [employer was] entitled to cancel on the basis that there was a major breach of an essential term, the agreement does contain a forfeiture clause (sic), clause 15.1, entitling the [employer] to cancel the agreement on specific grounds, reading as follows: . . . ‘

(61) The arbitrator then dealt with the clause 15.1.13 of the agreement and stated the following:

‘But when the Agent issued his instructions to the contractor on 2006-03-16, after he had inspected the site with the [employer] on 2006-03-16, he was the Agent and he referred to a formidable list of matters that needed attention, but the [contractor] did not comply with this instruction. The [employer was] thus also entitled to cancel the agreement between themselves and the contractor in terms of clause 15.1.3 read with clauses 6.2 and

6.2.12, an aspect that was raised in the fourth paragraph of the letter of cancellation of 2006-10-23: “Your breaches . . . in any event justify cancellation in terms of clause 15 of the agreement.’

(62) In paragraph 20 the following is stated:

Mr Vlok did not rely on the grounds referred to in clause 15.1, and I do not rely on these grounds to come to the conclusion that the agreement was cancelled in terms of clause 15. It was cancelled in terms of the general principles applicable to the cancellation of contracts as stated in paragraph [13] [This appear to be an error and should be a reference to para 16 of the interim award} above, as well as in terms of clause 15.1.3 of the Building Agreement.

(63) It should be noted that the arbitrator failed to deal with the issue of repudiation in the following context or at all: In many cases the repudiating party may have a bona fide belief that his interpretation of the contract is correct, and may subjectively intend to be bound by it, but the test that must be applied is whether he acted in such a way as to lead a reasonable person to the conclusion that he did not intend to fulfil his part of the contract. Repudiation is not a matter of intention, it is a matter of perception. The perception is that of a reasonable person placed in the position of the aggrieved party. The test is whether such notional reasonable person would conclude that proper performance in accordance with a true interpretation of the agreement will not be forthcoming. (See Datacor International (Pty) Ltd v Intamarket (Pty) Ltd 2 001 (2) SA 284 (SCA) at 294).

(64) From the quoted portions of the interim award, the following is clear: The arbitrator regarded the mere existence of defects as a breach justifying cancellation and that it was not necessary to apply the terms the agreement in this regard. He further regarded the letter of the attorney as sufficient for purposes of determining whether the agreement was validly cancelled. He was further of the view that it was not necessary to test the letter of cancellation against the terms of the agreement in order to determine whether the letter constituted a valid cancellation in terms of the agreement. The arbitrator was also clearly under the impression that the JBCC agreement could be cancelled solely with resort to the general principles of the law of contract pertaining to cancellation. In addition the arbitrator was under the impression that the cancellation clause in the JBCC agreement merely provided an alternative ground for cancellation that stood alongside the general principles of the law of contract relating to cancellation and that either one could be applied or order to decide whether the agreement was validly cancelled or not. It also appears from the reasoned reward read as a whole that the arbitrator would have found that the agreement was validly cancelled in terms of the general principles of the law contract relating to cancellation, irrespective of whether it was validly cancelled in terms of the agreement.

(65) I am of the view that the present matter falls under the purview of the Goldfields principle.The arbitrator misconceived the nature of his function, namely to interpret and apply all the relevant terms of the agreement

to the facts for purposes of determining whether the employer validly cancelled the agreement. By asking the wrong question, namely whether the the defects were still in existence at the time when the letter of cancellation was sent and whether the employer was justified to cancel the agreement in terms of the general principals of the law of contract relating to cancellation, lead the arbitrator to misconceive the nature of his function namely to determine the validity of the cancellation within the four corners of the JBCC agreement, which prevented a fair trial of the issue relating to merits. This also explains why the arbitrator never raised any of the issues relating to the employer’s statement of claim which I have dealt with above.

(66) I therefor find that the arbitrator committed as gross irregularity in the conduct of the arbitration proceedings in view of which the final award must be set aside. Despite the fact that I have found that the interim award was not an award proper, but merely a decision, I am in any event going to set the interim award aside in order to avoid any uncertainty in this regard.

(67) The applicant also seeks the review and setting aside of the totality of the arbitration proceedings. I find this unnecessary. The effect of setting aside of the award is that everything that has happened since the arbitrator entered into the reference is nullified. His jurisdiction ceased on the publication of his or and is not revived by its setting aside.

(68) Because of my findings, I find it unnecessary to deal with the other issues raised in the papers.

(69) In the result, I make the following order:

1. The applicant’s application for condonation for the late filing of its replying affidavit is dismissed;

2. The interim award made by the first respondent on 6 September 2011 is set aside;

3. The final award made by the first respondent 10 August 2012 is set aside;

4. The disputes between the parties shall be submitted to a new arbitration tribunal in accordance with clause 18 of the JBCC Minor Works Agreement that was entered into between the parties on 10 September 2004;

5. The applicant is ordered to pay the cost of the application for condonation for the late filing of its replying affidavit;

6. The first and second respondents are ordered to pay the costs of the application for review, jointly and severally, the one to pay the other to be absolved, including the costs consequent upon the employment of two counsel.

_______

FOR

THE APPLICANT

ADVOCATE:

N DAVIS SC AND P A SWANEPOEL

ATTORNEYS: TINTINGERS INC, PRETORIA

FOR

THE SECOND AND THIRD RESPONDENTS

ADVOCATE:

J VLOK

ATTORNEYS: BOOYSE ATTORNEYS, GARSFONTEIN, PRETORIA ℅ COUZYN HERTZOG & HORAK, PRETORIA