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Bohnke NO and Others v JW Blue Construction Management (22866/2019) [2020] ZAWCHC 101 (20 May 2020)

20 October 2020

On 12 May 2020, the High Court in the Western Cape Division, Cape Town, heard an application that was lodged by the trustees of the Yes Please Trust (“the applicant”) for the provisional winding-up of JW Blue Construction Management Proprietary Limited (“the respondent”). This provisional winding-up order was based on a demand issued in terms of section 345(1)(a)(i) of the Companies Act 61 of 1973 (“the 1973 Act”). In the alternative, if an order for the provisional winding-up was not successful, the applicant sought an order directing the respondent to give effect to an adjudication determination dated 21 November 2019, that was part of an award issued by an adjudicator who was appointed and made his determination under the provisions of a JBCC Minor Works Agreement (“the agreement”), entered into by the parties. The applicant sought payment of the sum, together with interest thereon.

Background

The parties entered an agreement during 2018. The respondent was contracted to refurbish a property owned by the applicant. The Dispute resolution clause, provided for a two-tiered dispute process: 1) adjudication, and thereafter, should a party give a dissatisfaction notice against the adjudicator’s determination, 2) referral to arbitration.

In 2019, certain disputes arose between the parties. A first dispute was referred to adjudication (“dispute 1”). Pending the determination, the agreement was terminated on 23 April 2019, and the determination was issued on 1 July 2019. The applicant was found to owe the respondent an amount of R238 245.32 (“the Dispute 1 Determination”). Despite issuing a dissatisfaction notice against the Dispute 1 Determination, thereby initiating arbitration proceedings, the applicant settled the amount it owed to the respondent, as per the adjudication determination.

On 2 July 2019, the respondent issued a second Notice of Adjudication in respect of a different dispute (“dispute 2”), which it wanted to be dealt with by the same adjudicator from dispute 1. The applicant objected to the referral of the dispute 2, and on 4 July 2019, its attorneys responded to the new referral stating that “Given that the agreement has been terminated, the proper route should be one of arbitration rather than adjudication”. The Respondent rejected the applicant’s contention.

As a result, the parties could not reach agreement and the respondent referred the matter to the Association of Arbitrators, who on 3 September 2019 directed that “[T]he dispute resolution clause of the agreement between the parties (Clause 22) exists independently of the agreement. There is a dispute. In terms of the applicable Rules an Adjudicator must be appointed. The Association of Arbitrators is the appointing authority.” Dispute 2 proceeded before a newly appointed adjudicator and the applicant defended with a counterclaim. The determination for dispute 2 (“the Dispute 2 Determination”) was issued on 21 November 2019. In terms of this determination, which included a final account and a final certificate, the respondent now owed the applicant money. The respondent issued a Notice of Dissatisfaction the next day. The applicant’s attorneys demanded payment of the amount, to which the respondent responded, that it did not dispute the amount owing, but merely raised an issue with the time frame for payment. A second demand letter was issued by the applicant on 29

November 2019, in terms of section 345 of the Companies Act, 1973, placing the respondent on terms that if the amount was not settled within three weeks from the date of delivery of the letter, the respondent would be deemed to be unable to pay its debts in terms of section 345 of the 1973 Act. Despite this, the respondent failed to make payment as demanded, resulting in the applicant’s court application brought on an urgent basis.

At the time of this court hearing, both dispute 1 and dispute 2 were, as agreed between the parties, subject to a single combined arbitration.

Issues before the court to be decided

The respondent inter alia contended the application on two defences:

  1. That the applicant’s application for its winding-up was an abuse of process, the applicant brought the application in the wrong format, and should be dismissed, alternatively,
  2. as the respondent was of the view that the Dispute 2 Determination is not enforceable as the agreement had been cancelled and the monies owed and relied on by the applicant is disputed, the application must be postponed sine die, pending the finalisation of the arbitration.

Court’s views and findings

1) Applicant’s application an abuse of process:

The application was brought on an urgent basis with a request that it be heard as such and that the court dispense with the forms and requirements of the Rules of court in terms of Rule 6(12)(a). The court held that it is not unusual for applications of this nature to be brought as one of urgency on a short form of notice of motion. Any party opposing such application is given opportunity to do so either by agreement between the parties or by the court at the first appearance. This was the case. The matter was enrolled on 7 January 2020. On this date an order was obtained by agreement for the parties to file further papers, and the matter was postponed for hearing on 12 May 2020. No prejudice was suffered by any party.

The court in support, referred to other cases, Commissioner for SARS v Hawker Aviation Services (Pty) Ltd [2006] 2 All SA 565 (SCA), wherein the Supreme Court of Appeal held at p 569:

Urgency is a reason that may justify deviation from the times and forms the rules prescribe. It relates to form, not substance, and is not a prerequisite to a claim for substantive relief. Where an application is brought on the basis of urgency, the rules of court permit a court (or a judge in chambers) to dispense with the forms and service usually required, and to dispose of it ‘as to it seems meet’ (Rule 6(12)(a)). This in effect permits an urgent applicant, subject to the court’s control, to forge its own rules (which must ‘as far as practicable be in accordance with’ the rules). Where the application lacks the requisite element or degree of urgency, the court can for that reason decline to exercise its powers under Rule 6(12)(a). The matter is then not properly on the court’s roll, and it declines to hear it. The appropriate order is generally to strike the application from the roll. This enables the applicant to set the matter down again, on proper notice and compliance.

Because liquidation proceedings are by their very nature urgent, the court was satisfied that the applicant used the correct procedure in bringing his application.

2) Adjudicator’s award cannot be enforced due to termination and/or the award is challenged and subject of pending Arbitration:

The court held that it was common cause that the agreement was terminated on 23 April 2020. The respondent was aware thereof when it instituted the adjudication proceedings on Dispute 2. It was the applicant who initially objected to the Dispute 2 process being instituted and the respondent who persisted therewith. Due to the Dispute 2 Determination being in the applicant’s favour, the respondent now raised an issue. The court agreed with the applicant’s argument, that the respondent’s conduct in this regard, was not only legally bad, but demonstrated a lack of good faith.

Both the Dispute 1 and Dispute 2 proceedings were concluded after the agreement was terminated. After the Dispute 1 award, the respondent insisted on immediate payment of the award in its favour, despite that the applicant issued a Notice of Dissatisfaction against the Dispute 1 Determination. The respondent relied on the terms of the agreement that the adjudicator’s award remains in force and must be complied with until the award gets overturned in arbitration.

The court referred to clause 22 of the agreement, which provided that “[T]his clause [22.0] shall, to the extent necessary to fulfil its purpose, exist independently of the agreement.

The court will not review or hear an appeal against the Dispute 2 Determination. For these reasons, the termination of the agreement had no bearing on the proper referral to adjudication, and no bearing on its outcome.

The court referred to the position adopted in Stocks & Stocks v Gordon 1993 (1) SA 156 (T), the outcome of which, have become settled in our law and has been followed in various cases. In the Stocks & Stocks case, Van Dijkhorst J held:

The scheme of clause 26 of the contract is conducive to finality and dispute resolution. The last provision of clause 26.3 is included to ensure continuation of the work pending arbitration which occurs generally speaking after the completion of the work and to obviate tactical creation of disputes with a view to postponement of liability. This cuts both ways. The contractor may be dissatisfied with the opinion of the mediator about the quality of his workmanship which may lead to that work having to be redone or the rejection of his claim for interim compensation which may cause a cash-flow problem. The employer may be dissatisfied with a mediator award of compensation to the contractor. Yet to ensure that the work does not become bogged down by a dispute about this, this, the contract provides that effect is to be given to the opinion. Should arbitration or litigation determine that the mediator’s opinion was wrong, the matter is rectified and the necessary credits and debits will have to be passed in the final accounts

The court relied on other recent cases that adopted the Stocks and Stocks position. In a Supreme Court of Appeal case, Rodon Projects (Pty) Ltd v NV Properties (Pty) Ltd and another [2013] 3 All SA 615, Nugent JA in paragraph 4, held that:

It has now become common internationally – in some countries by legislation – for disputes to be resolved provisionally by adjudication. In Macob Civil Engineering Ltd V Morrison Construction Ltd [BLR 93 at 97] adjudication was described as:

…a speedy mechanism for settling disputes [under] construction contracts on a provisional interim basis, and requiring the decision of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement….But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process.

The dispute resolution clause of the agreement was correctly interpreted and understood by the respondent when it insisted on settlement of the Dispute 1 Determination and when it argued in favour of referral for adjudication of the Dispute 2.

The court referred to sub-clause 22.4.2 of the agreement, which provided that “[A] determination given by the adjudicator shall be immediately binding upon, and implemented by the Parties.” Where a dispute which had been adjudicated is referred to arbitration, sub-clause 22.5.1 states that “[T]he resolution of the dispute shall commence anew. The arbitration shall not be construed as a review or an appeal from any adjudicator’s determination, and that any such determination by the adjudicator shall remain in force and continue to be implemented until overturned by an arbitration award.” (the courts underlining)

The court further referred to the well-known Constitutional Court case of Barkhuizen v Napier 2007 (5) SA 323, which held that “…parties should comply with contractual obligations that have been freely and voluntary undertaken.” This is with reference to the pacta sunt servanda principle.

The court was of the view that the applicant was entitled to resort to section 345 of the 1973 Act by sending a letter of demand to the respondent in terms of these provisions. The respondent failed to pay the amount demanded. The Supreme Court of Appeal in, Lamprecht v Klipeiland (Pty) Ltd [2014] JOL 32350 (SCA), affirmed that a creditor under these circumstances has a right ex debito justitiae to a winding-up order against the company who has failed to discharge its debt. At paragraph 16, the court inter alia stated:

…There is no dispute that although the section 345(1)(a) demand was served on the respondent, it has not paid any amount nor secured or compounded any amount to the reasonable satisfaction of the appellant. To my mind, the jurisdictional requirements set out in section 345(1)(a) have been met.” Further cases were referred to as well, the Supreme Court matter of Afgri Operations v Hamba Fleet (Pty) Ltd [2017] ZASCA (24 March 2017), wherein it was held that, “generally speaking, an unpaid creditor has a right, ex debito justitiae, to a winding-up order against the respondent company that has not discharged that debt”.

The court in exercising its discretion, stated that once the debt has been established to exist as in this matter, the applicant has a right ex debito justitiae to the winding-up order. Despite these factors, the court still needs to exercise its discretion judicially.

The respondent, by entering into the agreement, had undertaken to do so and the pacta sunt servanda principle is applicable to it. The court held that the respondent’s contentions that the enforceability of the Dispute 2 Determination was negated by its challenge to arbitration, was not advanced on reasonable grounds and is contrary to the respondent’s previous conduct with regards to Dispute 1.

The respondent’s papers lack any indication of its solvency nor that any of its employees would lose their livelihood in the event of its winding-up. The respondent’s failure to have responded to the section 345 notice, lends itself to a conclusion that it would not be in the interest of justice to refuse the provisional winding-up of the respondent.

The court was satisfied that a prima facie case has been established on a balance of probabilities that a provisional winding-up should be granted.

As a result, the respondent was placed under provisional liquidation, and a rule nisi was ordered, providing an opportunity for all interested parties, to show cause, if any, by a certain date why the provisional liquidation order should not be made a final order of court