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 11th 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, 4th Edition, 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
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