IN
THE HIGH COURT OF LESOTHO

HELD
AT MASERU

CIV/T/555/2007

In
the matter between:

LEBONE
CONSULTANTS (PTY) LTD …............................PLAINTIFF

AND

NATIONAL
AIDS COMMISSION
…...............................DEFENDANT

SUMMARY

Arbitration
clause in a contract – Pleading over to the merits prior to
referral to the Arbitrator- Application for stay of
proceedings in
terms of section 7 of Arbitration Act 1980 – Arbitration clause
survived the termination of the contract-Arbitration
not a bar to
legal proceedings – Matter referred to Arbitration

RULING

Delivered by
the Honourable Madam Justice Chaka-

Makhooane on
the 11^th day of August,
2010.

[1] This is
a civil action wherein the Plaintiff issued Summons against the
Defendant seeking an order of court for damages in the amount
of
M1,080,066.00 for breach of a contract as a result of premature
termination and cancellation of the contract by the Defendant.

[2] It is
common cause that the Plaintiff and the Defendant entered into a one
(1) year agreement in terms of which the Plaintiff was
contracted for
the procurement and distribution of condoms throughout Lesotho, in
consideration of the sum of two million, nine
hundred and fifty eight
thousand and eight hundred Maloti (M2 958 800.00). It is also
apparent that the Defendant, at some stage,
terminated the agreement.
It was following the termination of the contract that the Plaintiff
instituted the present proceedings
against the Defendant claiming
that the cancellation was unlawful.

[3] At the
commencement of the proceedings, Mr. Matooane for the
Defendant, raised a special plea to the effect that clause 16.1 of
the contract, enjoined the parties to refer disputes that might arise
between them, to an Arbitrator, for settlement and that
the
Arbitrator’s award shall be final and binding.

[4] Mr.
Matooane argued that the Plaintiff had failed to observe and
comply with this provision of the contract. He submitted that the
position
of the law is that when a contract contains a term which
provides that disputes be referred for arbitration, such a term must
be
complied with. He insisted that such a term is not meant to oust
the jurisdiction of the court, it only delays its interposition.
See
Herbstein & Van Winsen, 4^thEdition,
pages 261-262. Thus he prayed that the dilatory plea of the
arbitration ought to succeed and the matter should accordingly be
referred.

[5] Mr.
Makholela for the Plaintiff acknowledged the established
principle of the law, that a term in a contract which refers the
matter for arbitration,
is binding upon the parties. He nevertheless,
submitted that, according to the case of Davies v South British
Insurance Co. (1885) 3 SC 416 quoted with approval in Glandfied
v ASP Development Syndicate Ltd 1911 AD at 374, the right
of arbitration which has been waived cannot be insisted and acted
upon. Mr. Makholela’s main contention was that the
Defendant in pleading over to the merits and failing to apply for a
stay of the proceedings,
in pursuance of section 7 of the
Arbitration Act No 12 0f 1980, the Defendant waived its right
to arbitration.

[6] In
advancing his argument Mr. Makholela, submitted that an
arbitration agreement does not automatically bar legal proceedings in
respect of disputes covered by the agreement,
as the court is vested
with authority to decide whether to entertain such proceedings or
not. See Parekh v Shah Jehan Ginemas (Pty) Ltd & Others 1980
(1) SA 301 at 305.

[7] I now
consider the issue whether pleading over to the merits constituted
the Defendant’ waiver of the right of arbitration.
The parties
are ad idem in so far as the binding effect of clause 16.1
of the contract is concerned. It provides that:

“In the
event of any dispute between the parties as to the implementation or
interpretation of any of the terms of this Agreement,
the parties
agree that the dispute shall be settled through amicable dialogue,
failing which it shall be referred to an Arbitrator.
The decision of
the Arbitrator shall be binding and final.”

[8] Waiver
has been described as the abandonment of rights by one or both
parties to a contract. See Gibson, South African Mercantile
and Company Law, 7th edition, 1997, 111. The learned
author continues at page 112 to cite the case of

Lanfear v Du
Toit 1943 AD 59. This case established the
principle that the agreement to waiver may be implied, though the
courts will not lightly infer the abandonment
of a right it must
appear clearly from the words or conduct of the parties.

[9] The
Defendant’s plea filed of record was that the matter had been
brought prematurely before the court since there was an
agreement to
refer disputes to the arbitration process. Apart from these clear
terms, nothing else would make one believe that
the Defendant
intended to waive its right as is required by law. Pleading over to
the merits cannot, pe ser, be a bar, when the Defendant
decides to enforce the right of arbitration. The Plaintiff’s
contention in this regard cannot
be upheld.

[10]
Plaintiff’s Counsel argued that in terms of section 7 of
the Arbitration Act, No 12 of 1980 (the Act),
the Defendant ought to have applied for a stay of proceedings. It
provides that:

“Stay of
legal proceedings where there is an arbitration agreement. (1) If any
party to an arbitration agreement commences any legal
proceedings in
any court (including any inferior court) against any other party to
the agreement in respect of any matter agreed
to be referred to
arbitration, any party to such legal proceedings may at any time
after entering appearance but before delivering
any pleading or
taking any other steps in the proceedings, apply to that court for a
stay of such proceedings.”

[11] The
Defendant opted not to apply for a stay of the proceedings, but
rather pleaded over to the merits. In the pleadings he showed
that
the intention was to invoke the provision envisaged in clause 16.1
by referring the matter to arbitration. The parties agree that the
clause is not mandatory but it is permissive, and it applies
in
circumstances where an appearance to defend had been filed and not at
the delivery of further pleadings. The option of pleading
did not, in
my opinion, ipso facto bar the Defendant from exercising the
right of arbitration, in the absence of an intention to waive it.
Therefore, the argument
that there ought to have been a stay of
proceedings falls away.

[12] Whether
the clause survived the termination of the contract is answered in
the affirmative. I agree with Mr. Matooane that the
termination clause which is clause 17.0 of the contract is
part of the agreement, and it would call for an Arbitrator to
interpret it. The Plaintiff insisted in the notice
of motion that the
termination was improper, and to determine this, the contract will
need to be looked into and in this case through
the agreed
arbitration process.

[13] The
other issue that was raised was that arbitration does not
automatically bar the legal proceedings in respect of disputes
covered
by the agreement. Counsel for the Plaintiff, cited Parekh
v Shah Jehan Ginemas (Pty) Ltd & Others 1980 (1) SA 301 at
305, where Didcott J at 305 – it had this to say:

“While
the arbitration is in progress, the Court is there whenever needed to
give appropriate directions and to exercise due supervision.
And the
award of an arbitrator cannot be enforced without the Court’s
imprimatur, which may be granted or withheld. But that
is by no means
all. Arbitration itself is far from an absolute requirement, despite
the contractual provision for it. If either
party takes arbitrable
disputes straight to Court, and the other does not protest, the
litigation follows its normal course, without
pause. The check it,
the objector must actively request a stay of the proceedings. Not
even that interruption is decisive. The
Court has discretion whether
to call a halt for arbitration or to tackle the dispute itself…
Throughout, its jurisdiction,
though, sometimes latent, thus remains
intact”.

[14] Having
found that the courts as a rule, must enforce the agreement of
arbitration and in the absence of good cause shown, as it
is in the
present case, it is an order of this court that the parties must
submit this dispute to the decision of an Arbitrator
appointed in the
manner as provided for by clause 16.1 of the agreement.

Costs to follow
the event.

________________________

L.
CHAKA-MAKHOOANE

JUDGE

For
Plaintiff : Mr. Makholela

For
Defendant: Mr. Matooane