University Research Company, LLC (URC) v Vikelizizwe Solutions NPC (84026/19) [2021] ZAGPPHC 735 (29 October 2021)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

CASE NO: 84026/19

NOT REPORTABLE

NOT OF INTEREST TO OTHER JUDGES

NOT REVISED

In the matter between:

UNIVERSITY RESEARCH COMPANY, LLC (URC) Applicant

AND

VIKELIZIZWE SOLUTIONS NPC Respondent

JUDGMENT

Mthimunye AJ

[1] This is an application to refer the dispute to arbitration in terms of the agreement entered into by and between the parties and to stay the main proceedings pending determination of the dispute by way of arbitration.

[2] The applicant is University Research Company, LLC (URC), a company registered in terms of the Laws of the United States of America having its principal place of business at 5404 Wisconsin Avenue, Suite 800, Chevy Chase, MD20815, United States of America with its South African principal place of business being 44 Aquity House, Sovereign Drive, Route 21 Corporate Park, Irene, Pretoria, Gauteng.

[3] The respondent is Vikelizizwe Solutions NPC, a non-profit company registered in terms of the laws of the Republic of South Africa, Registration Number 2016/222408/08 and whose principal place of business is 343 Surrey Avenue, Ferndale, Randburg, Gauteng.

[4] The historical background that has given rise to this application is as follows: On or about 23 February 2018 the parties entered into an agreement (Contract Number FY18-S09-8838), hereinafter referred to as the " first sub-contract" or the "secondary agreement" in terms of which the respondent would provide Voluntary Medical Male Circumcision (VMMC Ill) for the period 22 February 2018 to 30 September 2018 in terms of Prime Contract Number AID-674-H-17-00002 concluded by the applicant and the United States Agency for International Development (USAID) (hereinafter referred to as the "main" or "primary contract").

[5] In terms of this sub-contract ("the first subcontract"), the respondent would provide high volume VMMCs to eligible males through WHO-approved methods in 14 of USAID supported districts in Gauteng, Free State, North West, Limpopo, Mpumalanga and KwaZulu-Natal.

[6] The respondent was to provide services in respect of 21 900 units of comprehensive VMMC service packages over the agreed period at a price of R850.00 including VAT per unit.

[7] Invoices for services rendered were to be forwarded by the respondent to the applicant in US Dollars, in a specified format, with supporting documents and within specific timeframes. Once the requirements were met, payment would be promptly made by the applicant. All invoices pertaining to services provided in terms of the first subcontract were paid.

[8] On 11 November 2018, the parties entered into a second agreement (the "second subcontract") for the period 01 October 2018 to 30 September 2019 at a price of R950.00 including VAT per unit in terms of the same Prime Contract AID-674-H-17-0002 entered into between the applicant and the United States Agency for International Development (USAID). Save for the volume which was increased to 39 795 VMMCs and the national footprint being Gauteng, North West, Limpopo, City of Johannesburg, Ekurhuleni, Sedibeng, Capricon Mopani and Ehlanzeni, the terms of the second subcontract were similar to the first one in respect of service provision and invoicing. Invoices sent to the applicant by the respondent for services provided during the period 01 October 2018 to 26 June 2019 were duly paid by the applicant.

[9] The respondent sent subsequent invoices for the period 27 June 2019 to 12 September 2019 (Invoice Numbers 46 to 75) in terms of the second subcontract, which invoices amounted to R42 519 530.00. These were not paid.

[10] On or about 21 August 2019 the respondent received a notice from the applicant in terms of which, according to the respondent, the applicant unilaterally terminated the second sub-contract agreement between the parties.

[11] Despite demand for the payment of outstanding invoices, the applicant refused to pay which then led to the respondent instituting legal proceedings in this court against the respondent in November 2019, claiming payment of R42 519 530.00 (Forty-Two Million Five Hundred and Nineteen Thousand Five Hundred and Thirty Rand), interest at 10% per annum and costs of suit. The applicant is the defendant in the main action and the respondent is the plaintiff. For convenience, throughout this judgment I refer to the parties as applicant and respondent.

[12] The applicant filed a plea containing a special plea to the effect that in terms of both the first and second sub-contracts entered into by and between the parties, all disputes arising in connection with the agreements that cannot be resolved within a reasonable time following good faith attempts by the parties are to be referred to arbitration. In this regard, the applicant relies on clause G.7 of the second subcontract which reads:

"all disputes arising in connection with the agreements that cannot be resolved within a reasonable time following good faith attempts by the parties shall be finally settled in accordance with the Commercial Industry Rules of the American Arbitration Association, before a single arbitrator, and further, that such arbitration shall be held either in Washington, DC, or Chevy Chase, Maryland, USA"

[13] The plea contained a plea in abatement for the special plea to be heard separately and in advance of all other issues on the pleadings. An order in that regard was granted by my sister Cochrane AJ on 18 June 2021. The matter was then referred to this court for the determination of the stay and referral to arbitration.

[14] In its plea, the applicant disputes the respondent's claim. It confirms that it concluded an agreement with the respondent in November 2018 ("the November 18 Agreement") and avers that that agreement was interrelated to, dependent upon or indivisible from the written primary agreement concluded between the applicant and the USAID i.e. the 'Primary Agreement' referenced AID 674-H-17-00002.

[15] The material terms of the primary agreement were, amongst others, that in order for the applicant to receive payment all deliverables must be accepted and approved by the USAID Contracting Officer Representative ("COR"); and that the USAID was entitled to terminate the primary agreement for convenience. The applicant asserts that USAID invoked its entitlement to terminate for convenience and indeed terminated the primary agreement in August 2019. Consequently, the applicant had to terminate its agreement (the November 18 agreement) with the respondent as the two were interrelated and could not be divorced from each other.

[16] The material terms of the November 18 agreement which is the agreement to which the respondent refers to as the second sub-contract agreement, were, amongst others, that payment of the Invoice submitted by the respondent would normally be within five (5) working days of the corresponding payment from USAID; and that Clause number 52.249-2 of the primary agreement, which provided for termination of the agreement for convenience of government, was incorporated by reference into the November 18 agreement.

[17] The applicant avers that the interpretation of the clauses referred to above read with the November 18 agreement is that payment to the respondent would become due, owing and payable once the Contracting Officer Representative ("COR") accepted and approved all deliverables; and the corresponding payment was received by the applicant from USAID; and that in the event of the Primary Agreement being terminated, the November 18 agreement would likewise be terminated.

[18] The applicant denies that it is liable to the respondent at all or in the sum demanded for the following reasons: The COR neither accepted nor approved the deliverables to which the respondent's invoices referred to; the services for which payment is claimed by respondent, it argues, were not delivered; the corresponding payment was not received from USAID; USAID terminated the Primary Agreement for convenience and thus the respondent is not entitled to payment for alleged services rendered after the termination.

[19] In terms of the termination notice, the applicant would only be liable for payment to the respondent for the VMMC services that were completed and accepted by the COR; and for Invoices submitted in compliance with the contract for services provided prior to the termination.

[20] The applicant admits that from time to time the respondent rendered services to the applicant, for which it was paid. It however disputes in particular that the respondent has rendered the services for which it seeks payment and in the quantum it alleges or that payment is due, owing and payable. It asserts that in consequence of this dispute, the respondent was required to refer the dispute to arbitration in accordance with the relevant clauses in the agreement upon which it relies.

[21] It is on that basis that the applicant brought this application seeking the stay of the respondent's action pending final determination of the dispute by arbitration in terms of the arbitration clause referred to above. This court is not called upon to consider the merits of the dispute as those will either be determined by way of arbitration should this applicant succeed or in a further trial before this court in the event that the applicant is dismissed.

[22] What the applicant seeks to be determined by this court, is whether or not there exists a dispute between the parties as alleged by the applicant; and further, whether this matter should be finally settled in accordance with the Commercial Industry Rules of the American Arbitration Association, before a single arbitrator in Washington, DC, or Chevy Chase, Maryland, USA in accordance with clause G.7 of the November 18 agreement. It is for the first question to be determined that I have thought it prudent to go into detail as to the background of this matter as well as the provisions of the agreements between the parties.

[23] The respondent avers that there exists no dispute between the parties except that the applicant is indebted to the respondent for services rendered in terms of the contract. It argues that the 'dispute' referred to in the arbitration clause refers to a dispute of fact however this is a dispute in law rather than fact and as such it did not have to comply with the arbitration clause. The applicant argues that the word 'dispute' in the arbitration clause is wide enough to cover a dispute relating to payment of invoices.

[24] The word 'dispute' is not defined in the November 18 agreement. Neither is there a specified list of what the parties would consider 'arbitrable' disputes. This court is burdened with the determination of whether or not this is the 'dispute' that was envisaged by the arbitration clause.

[25] It is trite that in interpreting the wording of an agreement, consideration must be had to the context and the purpose for which the agreement was concluded – Natal Joint Municipal Pension Fund v Endumeni Municipality (2012) ZASCA 13; 2012 (4) SA 593 (SCA) at 603E-604D. In the absence of a definition of the word 'dispute' and looking into the context as guided, it is clear to this court that the purpose of the arbitration clause was to regulate any possible dispute between the parties. In this regard I agree with the applicant that the word 'dispute' must be given a wide interpretation to include the dispute before this court.

[26] Not only does the applicant dispute that it is indebted to the respondent at all, or for the claimed amount, it also disputes that the services for which the respondent claims to be owed for were provided. It asserts that it is not liable for any services that may have been provided by the respondent after the agreement between the parties was terminated and for invoices that did not comply with the provisions of the contract. The respondent alleges that it ceased to provide services after it received the notice of termination.

[27] Clearly, there is a dispute of fact which, even by the respondent's submission on the case it relied on, would merit holding the parties to the arbitration agreement. For this reason, I must reject the respondent's aversion that the dispute herein only refers to a point of law. In any event, even if it were so, it has been held that the fact that the issue before the court is a purely legal one should not make any difference or does not preclude the referral of the matter to arbitration – Kmatt Properties (Pty) Ltd v Sandton Square Portion 8 (Pty) Ltd and Another 2007 (5) SA 475 (W) at para 42 and Altech Data (Pty) Ltd v MB Technologies (Pty) Ltd 1998 (3) SA 748 (W).

[28] It is not unusual that when entering into a contract, parties will choose a forum under whose jurisdiction they agree to submit in the event of a dispute, which is the case herein. In Clause G.7 of the November 18 contract, the parties agreed to submit to the jurisdiction of the American Arbitration Association and for the arbitration to be heard before a single arbitrator in Washington, DC, or Chevy Chase, Maryland, USA.

[29] The respondent, in opposing the referral to arbitration, has further argued that the arbitration route would be costly and such costs and time would be saved by dismissing this application and allowing this dispute to the finalised by the court. To support this argument, the respondent relied on Halifax Overseas Freighters Ltd v Rasno Export; Technoprominport and Polskie Linie Oceaniszne PPW (The "Pine Hill") 1958 (2) Lloyd's List Law Reports 146 at p 151, where factors including, time, expense and costs were listed as factors to consider in determining whether or not the parties should be held to the contract to arbitrate.

[30] In the law of contracts, there exist a universally recognised principle or maxim known as the principle or doctrine of pacta sunt servanda which means 'agreements must be kept' or put differently that obligations created in terms of an agreement, as long as entered into

voluntarily, must be honoured. This doctrine has been constantly applied and enforced by our courts over the years. In Everfresh Market Virginia (Pty)Ltd v Shoprite Checkers(Pty) Ltd [2011] ZACC 30; 2012 (1) SA 256 (CC); 2012 (3) BCLR 219, the Constitutional Court, at Para 70, referred to this doctrine as "the age-old contractual doctrine that agreements solemnly made should be honoured and enforced..."

[31] The applicant relied on Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W), at 391 where the court held that there should be compelling reasons for refusing to hold a party to his contract to have a dispute resolved by arbitration.

[32] In Wells v South African Alumenite Company 1927 AD 69, at para 73, the Appellate Division held that

"If there is one thing, which, more than another, public policy requires, is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall beheld sacred and enforced by the courts of justice."

[33] In referring the Wells dictum, the Supreme Court of Appeal in Mohamed Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd (183/17) ZASCA 176 at Para 23, held that "The privity and sanctity of contract entails that contractual obligations must be honoured when the parties have entered into the contractual agreement freely and voluntarily. The notion of the privity and sanctity of contracts goes hand in hand with the freedom to contract. Taking into considerations the requirements of a valid contract, freedom to contract denotes that parties are free to enter into the contracts and decide on the terms of the contract".

[34] Referring to the privity and sanctity of contract principle, Davis J in Mozart Ice Cream Franchises (Pty) Ltd v Davidoff & Another (2008) ZAWCHC 118; 2009 (3) SA 78 (C) at 85A held that 'without this principle, the law of contract would be subject to gross uncertainty, judicial whim and an absence of integrity between the contracting parties'. In Brisley v Drotsky [2002] ZASCA 35, 2002 SA 1 (SCA), Cameron JA cautioned that in exercising their judicial discretion in contractual obligations to which parties have freely and knowingly entered into, judges must exercise 'perceptive restraint' lest contract law become unacceptably uncertain. I am constrained by this principle.

[35] The respondent did not bring an application to this court in terms of Section 3(2) of the Arbitration Act 42 of 1965 for this court to set aside the arbitration agreement. What the respondent did, was to oppose the application by the applicant to refer this matter to arbitration. In its opposition, the respondent advanced reasons for the court to dismiss the application. As correctly pointed out by the applicant, the respondent herein bore the onus to satisfactorily demonstrate why this court should exercise its discretion not to refer this matter to arbitration. I am not satisfied that the respondent has successfully discharged that duty. I have already alluded to the respondent's submission in this regard and why I found them not compelling to dissuade this court from granting an order in favour of the applicant.

Consequently, I make the following order:

1. The dispute before the parties is referred to arbitration in terms of Clause G-7 of the contract entered into by the parties in November 2018.

2. The proceedings before this court are stayed pending determination by way of arbitration.

3. Costs in the cause.

Mthimunye DP

Acting Judge of the High Court

Gauteng Division

Appearances:

For the Applicant: Mr A Govender

Instructed by: Norton Rose Fulbright SA Inc.

For the Respondent: Ms N Bhagwandeen

Instructed by: Miya Inc Attorneys

Date of Hearing: 10 August 2021

Date of Judgment: 29 October 2021