National African Federation for the Building Industry and Another v Safety and Security Sector education and Training Authority (7094/2016) [2017] ZAKZDHC 46 (12 December 2017)

IN THE HIGH COURT OF SOUTH AFRICA

KWAZULU-NATAL LOCAL DIVISION, DURBAN

CASE NO: 7094/2016

In the matter between:

NATIONAL AFRICAN FEDERATION FOR THE

BUILDING INDUSTRY First Applicant

BUSINESS EDUCATION PARTNERSHIP FORUM Second Applicant

and

SAFETY AND SECURITY SECTOR EDUCATION

AND TRAINING AUTHORITY Respondent

JUDGMENT

Delivered : 12 December 2017

CHETTY J

[1] The applicants launched an application against the respondent for payment of R1,1 million, being the outstanding balance due in terms of a contract entered into between the parties for the total amount of R4,5 million. The respondent opposed the application, raising several points in limine, contending that the applicants failed to refer the dispute between the parties to arbitration in terms of a Discretionary Grant Agreement (‘DGA’) concluded between the parties; that the contract between the parties was concluded in Midrand, Gauteng and this court accordingly has no jurisdiction to entertain the matter. The respondent further challenged the authority of the resolution authorising the deponents to sign the founding affidavits on which the application is based. In relation to the merits of the applicants’ complaint, the respondent denies liability in any amount, contending that the applicants did not qualify to be awarded a contract or discretionary grant as they were not levy paying service providers in terms of the Skills Development Levies Act 9 of 1999, and further, that the officials of the respondent who were responsible for the awarding of the grant acted ultra vires and contrary to s 195 of the Constitution and s 57(a) and (b) of the Public Finance Management Act, 1 of 1999. Accordingly, it is contended that the disbursement of funds already paid to the applicants was unlawful.

[2] In light of the points in limine taken, I considered it prudent to deal with those before venturing to consider the merits of the application, especially as the aspect of the jurisdiction of this court to entertain the matter has been pertinently raised by the respondent. In my view, if the respondent’s points (or any of them) succeed, that would be dispositive of the matter. Both Mr Matlamela who appeared for the applicants and Mr Sethene for the respondent were in agreement with this approach, as well as the view that I should deal with the issue of whether the respondent

has shown good cause for the late filing of its answering affidavit, filed approximately two (2) months outside its due date. The

applicant opposed the application for condonation.

[3] The first applicant is one of the oldest building federations in the country, whose objective is to access economic opportunities for its members, while the second applicant is a facilitator of training programmes, including those in the building industry. The respondent is an entity established for the purpose of ensuring skills development within the security and safety sector. It receives funding from the state in terms of the Skills Development Levy Act. Whilst the first applicant is an employer organisation and strives to place qualified personnel with companies that form part of its membership base, the second applicant helps to facilitate the requisite training for personnel, in this instance, artisans in the building industry.

[4] On 16 September 2014, the second applicant and the respondent concluded a Memorandum of Understanding (MOU) to establish a joint

venture focusing on skills development, with the intention that certain Technical and Vocational Education and Training Colleges

(TVET) would form part of this programme. On 23 September 2014, the second applicant and the respondent concluded a Service Level

Agreement (SLA) in terms of which the respondent would fund the educational training provided to learners participating under the

programme.

[5] On 6 November 2014 the COO of the respondent wrote to the applicants inviting them to enter into a DGA in terms of which the respondent would fund a learning programme for 100 learners’ apprenticeships for the 2014/15 financial year, spanning across the Sedibeng, Elangeni and Umfolozi TVET Colleges. The total contract price agreed upon was R4,5 million. The respondent contends that the letter from the COO suggests that the applicants submitted a proposal for the grant. However, the applicants founding papers contain no averment of a proposal having been submitted to the invitation dated 6 November 2014. To the extent that a dispute exists in this regard, it is not material to the determination of the issue before me.

[6] Following the invitation, the parties concluded the DGA in Midrand, Gauteng on 12 November 2014, largely reflecting the outcomes as set out in the invitation of 6 November 2014. It is not disputed that the colleges forming part of the scope of the contract are situated in both Johannesburg and Durban. Pursuant to the applicants rendering services in terms of the contract, the respondent paid the applicants a total of R3,4 million in two tranches, leaving a balance of R1,1 million, which is the amount of the present claim by the applicants. The applicants contend that they have performed in terms of the contract and are therefore entitled to payment of the balance of the contract price. Despite various interchanges between the parties, no resolution was forthcoming regarding the outstanding amount, with the respondent adopting the position that as at November 2015, it had discovered that the contract with the applicants had been irregularly entered into.

[7] It is noteworthy that in the founding affidavit (and by necessary implication without sight of the points in limine that would

eventually be raised by the respondent), the applicants allude to the fact that the contract concluded by the parties provides that in the event of any disputes arising out of or relating to agreement, such disputes must be referred to arbitration. The applicants’

justification for their stance to proceed to litigation lay in clause 14.7 of the agreement which permits any contracting party to approach a court ‘for urgent relief or for judgment in relation to a liquidated claim’. As the applicants’ claim is for the liquidated amount of R1,1 million, I understood this averment to mean that the applicants were not bound to proceed by way of arbitration. Notwithstanding, this argument was not pursued with any conviction by the applicants’ counsel. In so far as the jurisdiction of this court to hear the matter, the applicants contend that two of the colleges at which the services had to be rendered were situated within the area of jurisdiction of this court and that a ‘greater portion’ of the contract was performed within KwaZulu-Natal.. On these grounds, the applicants contend that the matter is properly before this court.

The condonation application

[8] The applicants issued their application on 21 July 2016. The papers were served on the respondent on 4 August 2016. A notice to oppose was filed on 10 August 2016. The respondent’s attorney in the matter, a Ms Tilana, appears to have dealt with the matter prior to the institution of the application. Prior to the application being served on the respondent, Ms Tilana was appointed as an Acting Judge in the High Court, Grahamstown from 25 July 2016 until the end of August 2016. During this time, as is customary, an Acting Judge is precluded from having any association with his or her law practice. As no one else in her office was familiar with the matter, the matter lay unattended. As soon as her acting appointment came to an end, Ms Tilana emailed the applicants’ attorney on 30 August 2016 advising that she had just returned to her practice and requested an indulgence of seven days to consult with her client to file an answering affidavit. The applicants’ attorney responded on 31 August 2016 that no indulgences would be granted and indicated that the respondent should file its papers by close of business on that same day. Ms Irish-Qhobosheane, the deponent to the respondent’s opposing affidavit and its administrator, was on leave from 7 to 18 September 2016. Upon Ms Irish-Qhobosheane’s return, Ms Tilana addressed an email to the applicants’ attorney requesting a further two weeks to prepare an answering affidavit. At the same time Ms Tilana gave the applicants’ attorney advance notice of points that the respondent would raise in opposition to the claim and did so in the hope that if these points were considered valid, it could then bring an end to the litigation. She asked that the applicants take note that:

‘a. the Durban High Court does not have jurisdiction in the matter;

b. in terms of the Discretionary Grant Agreement, in the event of a dispute the aggrieved party is supposed to refer the matter to arbitration, that avenue was not explored and therefore the matter has been brought prematurely before the court; and

c. the agreement provides for SASSETA to withhold payment in the event of unsatisfactorily (sic) performance.’

[9] An email was addressed to the applicants’ attorney on 28 September 2016 asking for a response to the issues raised earlier as an appreciation for the points raised could curtail protracted litigation. A further email of 7 October 2016 drew no response from the applicants, causing the respondent to file its answering papers after consultations with senior counsel on 8 November 2016. The opposing affidavit of Ms Irish-Qhobosheane was signed on 31 October 2016.

[10] The respondent, in terms of Uniform Rule 6(5)(d)(ii), ought to have filed its answering affidavit by 31 August 2016 - within 15 days of 10 August 2016 when it indicated that it would oppose the claim. As matters transpired, the answering affidavit was filed more than two months outside of the date prescribed by the Rules. The issue to be addressed at the outset is whether the respondent should be granted condonation.

[11] As pointed out in her affidavit, Ms Irish-Qhobosheane submits that based on the respondent’s argument that the DGA was entered into irregularly with the applicants as it was not preceded by any public invitation to submit proposals, on this basis alone, the applicants claim must fail. That apart, the respondent raises several cogent law points which cannot be simply side-stepped by reason of the delay occasioned by the late filing of the answering papers. It is trite that an applicant for condonation is seeking an indulgence from the court. This entails a discretion vested in the court, which must be judicially exercised. The respondent has put up a detailed and accurate account of the cause of the delay and the extent thereof. The applicants, while opposing the application for condonation, have not spelt out what prejudice they will suffer as a result of the delay. See Uitenhage Transitional Local Council v South African Revenue Services 2004 (1) SA 292 (SCA) para 6. In my view, the interests of justice necessitate that this matter be properly ventilated and that the respondent be granted condonation for the late filing of its answering affidavit. I accordingly ruled that condonation be granted.

Points in limine

[12] I now turn to deal with the points in limine raised by the respondent. The first is that this court does not have jurisdiction

to entertain the application in as much as the contract between the parties was concluded in Midrand, Gauteng, outside of the area of jurisdiction of this court. Section 21(1) of the Superior Courts Act 10 of 2013 provides that:

‘A Division has jurisdiction over all persons residing or being in, and in relation to all causes arising and all offences triable within, its area of jurisdiction and all other matters of which it may according to law take cognisance. . . .’

[13] As the SCA in Makhanya v University of Zululand 2010 (1) 62 (SCA) para 52 pointed out:

‘. . .the term “jurisdiction”, as it has been used in this case, and in the related cases that I have mentioned, describes the power of a court to consider and to either uphold or dismiss a claim. And I have also pointed out that it is sometimes overlooked that to dismiss a claim (other than for lack of jurisdiction) calls for the exercise of judicial power as much as it does to uphold the claim.’

The court continued by adding that the merits of the claim play no role in determining whether the court has jurisdiction. It said the following at para 54:

‘…that the power of a court to answer a question (the question whether a claim is good or bad) cannot be dependent upon the answer to the question. To express it another way, its power to consider a claim cannot be dependent upon whether the claim is a good claim or a bad claim. The Chief Justice, writing for the minority in Chirwa, expressed it as follows:

“It seems to me axiomatic that the substantive merits of a claim cannot determine whether a court has jurisdiction to hear it.”’

(Footnote omitted)

[14] Relying on the decision in Ewing McDonald & Co Ltd v M & M Products Co [1990] ZASCA 115; 1991 (1) SA 252 (A), Harms DP in Gallo Africa Ltd & others v Sting Music (Pty) Ltd & others 2010 (6) SA 329 (SCA) aptly described the approach to a challenge to jurisdiction as follows:

‘Jurisdiction means the power vested in a court to adjudicate upon, determine and dispose of a matter. Importantly, it is territorial. The disposal of a jurisdictional challenge on exception entails no more than a factual enquiry, with reference to the particulars of claim, and only the particulars of claim, to establish the nature of the right that is being asserted in support of the claim. In other words, jurisdiction depends on either the nature of the proceedings or the nature of the relief claimed or, in some cases, on both. It does not depend on the substantive merits of the case or the defence relied upon by a defendant.’

(Footnotes omitted)

[15] In the present matter, the applicants’ claim is based on the contract concluded with the respondent. It is common cause that the contract was concluded in Midrand on 12 November 2014. Prior to this, the second applicant entered into a Memorandum of Understanding which was signed in Durban on 16 September 2014. On 23 September 2014, the second applicant concluded a Service Level Agreement with the respondent. It is not disputed that the claim of R1,1 million arises from a shortfall of the amounts stipulated in the contract. The applicants, recognising the potential consequence of the respondent’s point on jurisdiction being upheld, attempted to ‘spread’ the jurisdiction to KwaZulu-Natal on the basis of the MOU being concluded in this province and further, that two of the TVET colleges referred to in the contract are located in KwaZulu-Natal. The claim of the applicants is not for specific performance in relation to either of the colleges based in KwaZulu-Natal. The claim is rooted, plainly in my view, in the contract concluded in Midrand. In Gallo Africa, Harms DP at para 10 stated the following regarding the doctrine of effectiveness as a basis of jurisdiction under the common law. The court held:

‘For purposes of effectiveness the defendant must be or reside within the area of jurisdiction of the court (or else some form of arrest to found or confirm jurisdiction must take place). Although effectiveness “lies at the root of jurisdiction” and is the rationale for jurisdiction, “it is not necessarily the criterion for its existence”.5 What is further required is a ratio jurisdictionis. The ratio, in turn, may, for instance, be domicile, contract, delict. . . .It depends on the nature of the right or claim whether the one ground or the other provides a ground for jurisdiction. Domicile on its own, for instance, may not be enough. As Forsyth (at 164) rightly said:

“First there is the search for the appropriate ratio jurisdictionis; and then the court asks whether it can give an effective judgment. . . . [and] neither of these is sufficient for jurisdiction, but both are necessary for jurisdiction.”’

[16] I am in agreement with counsel for the respondent that as the claim of the applicants is based on a breach of the contract, the only conclusion to be drawn is that the right of either party to sue on the contract must of necessity have regard to where the contract was concluded. This constitutes the basis for jurisdiction.

[17] Counsel for the respondent submitted further that absent the requisite jurisdiction of this court, it is precluded from considering the merits of the matter. This line of argument is consistent with the view of Gorven AJA in a concurring judgment in Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co SARL 2015 (1) SA 345 (SCA) para 50 where he pointed out:

‘When a party raises a challenge to the jurisdiction of a court, this issue must necessarily be resolved before any other issues in the proceedings. The reason is simple. If the court has no jurisdiction, it is precluded from dealing with the merits of the matter brought to it.’

(Footnote omitted)

[18] Faced with what appeared to be an insurmountable hurdle, counsel for the applicants attempted to argue, without much success, that perhaps both the KwaZulu-Natal and Gauteng courts could have jurisdiction. This regretfully was a rear guard attempt at damage control. There is no room for such a proposition as one must focus on the contract in respect of which the alleged breach occurred. It was concluded in Midrand. The respondent has its offices in Gauteng and accordingly that court has jurisdiction over the matter. I am accordingly satisfied that this point in limine based on the lack of jurisdiction of this court to hear the matter, must succeed.

[19] Even if I am wrong regarding the aspect of the lack of jurisdiction, the respondent raises a further argument that the decision of the applicants to resort to litigation as opposed to proceeding through the dispute resolution mechanisms provided for in the contract, must entail that the applicants were premature in proceeding with this application. On this ground alone, it was submitted their application must fail. As set out earlier, clause 14 of the DGA provides that in the event of any dispute arising between the parties, such difference or dispute ‘shall be submitted to arbitration’, presided over by an arbitrator appointed by the Chairperson of the Johannesburg Bar Council.

[20] I am in agreement with counsel for the respondent that the contract evinces a clear preference by the contracting parties to be bound by the dispute resolution mechanism of arbitration for any of the differences that could arise between them. See Brisley v Drotsky 2002 (4) SA 1 (SCA). In Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews & another 2009 (4) SA 529 (CC) at para 219, the court categorically affirmed the principle of freedom of contract and stated the following in relation to the choice made by parties as to the manner in which their disputes are resolved:

‘The decision to refer a dispute to private arbitration is a choice which, as long as it is voluntarily made, should be respected by the courts. Parties are entitled to determine what matters are to be arbitrated, the identity of the arbitrator, the process to be followed in the arbitration, whether there will be an appeal to an arbitral appeal body and other similar matters.’

[21] If the applicants wished the court to prefer litigation above the express choice of having their disputes resolved by way of

arbitration, they would be required in terms of s 3(2) of the Arbitration Act 42 of 1965 to show good cause for the court to exercise its discretion in not recognising the agreement. In De Lange v Methodist Church & another 2016 (2) SA 1 (CC) para 37 the court held that:

‘. . .the requirement of good cause in order to escape an arbitration agreement entails a consideration of the merits of each case in order to arrive at a just and equitable outcome in a specific set of circumstances. Put in another way: is it in the interests of justice to hold a party to an arbitration agreement that would result in a futile, unfair or unreasonable outcome or perhaps an unconscionable burden? The Act is of the pre-Constitution kind. Now our understanding of good cause must embrace an enquiry into whether the arbitration agreement, if implemented, would unjustifiably diminish or limit protections afforded by the Constitution. Absent infringement of constitutional norms, courts will hesitate to set aside an arbitration agreement untainted by misconduct or irregularity unless a truly compelling reason exists. As this Court has itself [in Lufuno] stated—

“the values of our Constitution will not necessarily best be served by . . . enhanc[ing] the power of courts to set aside private arbitration awards. . . . If courts are too quick to find fault with the manner in which an arbitration has been conducted . . the goals of private arbitration may well be defeated.”’(Footnotes omitted)

The applicants herein have not come close to making out a case for this court to exercise its discretion in their favour to disregard the preference expressed by the contracting parties to have the disputes resolved by arbitration.

[22] There has been no suggestion at all by the applicants that they were in any way pressured into agreeing to follow the procedure set out in clause 14 to resolve conflicts. In addition, it has not been contended by the applicants that the resort to arbitration in any way offends some or other protected right or that it could be against public policy. Indeed, the only contention advanced on behalf of the applicants for proceeding to litigation as opposed to arbitration is that clause 14.7 permits an approach to the court ‘for urgent relief or for judgment in relation to a liquidated claim’. I am not persuaded by this argument for the reason that there is nothing in the founding papers that makes out a case of urgency or any prejudice that would befall the applicants if the matter were to have proceeded by arbitration. On the contrary, it would seem to me that it would be substantially quicker for parties to have their dispute resolved through arbitration than to wait for a date on the opposed motion court roll. Alternatively, the applicants rely on the resort to litigation as they contend they have a liquidated claim. The respondent appears to contend that it received less than satisfactory services entitling it to retain monies allegedly owing, suggesting that the amount may be disputed. Notwithstanding, I am not convinced that the existence of a liquidated claim trumps the expressed preference by the parties to have their dispute referred to arbitration. In any event, I am not satisfied that the applicants have successfully overcome the point raised by the respondent. Accordingly, this point taken by the respondent that the parties are bound to have their dispute referred to arbitration is sound in law, and must be upheld.

[23] In light of my finding on the above two points, I find no reason to canvass the third ground raised by the respondent, which I consider to be related more closely to the merits of the matter.

[24] In so far as costs are concerned, I see no reason why costs should not follow the result, including those occasioned by the postponement of the matter on 5 December 2016. The applicants were forewarned not to proceed further with the matter in light of this court not having jurisdiction to entertain the matter. The applicants held the view, mistakenly, that this court had jurisdiction. The respondent sought attorney-client costs. I am of the view that it would not be appropriate to mulct the applicants with such costs, particularly as they still have the option to proceed to arbitration in order to receive what they contend is due to them. The respondent sought costs of two counsel. Only Mr Sethene appeared in the matter, although the heads were settled by two counsel. That apart, I am of the view that this matter was not so complex as to warrant the involvement of two counsel.

[25] In the result I make the following order:

(a) The points in limine raised by the respondent are upheld;

(b) The application is consequently dismissed with costs, including those occasioned by the adjournment on 5 December 2016, with such costs to be paid by the first and the second applicants jointly and severally, the one paying the other to be absolved.

____________________

M R CHETTY

Appearances

For the Applicant: Mr Matlamela

Instructed by: Shabeer Joosab Attorney

Ref: Mr Joosab/MJM/3N190

Tel: 031 207 8337

For the Respondent : Mr Sethene

Instructed by: MTI Attorneys inc

Tel: 031 563 3112

Date of hearing: 23 October 2017

Date of Judgment: 12 December 2017