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Zongji Development Construction Engineering Company Limited v Kamoto Copper Company SARL (421/13) [2014] ZASCA 160 (1 October 2014) SCA

28 September 2015

Facts

  • Zongji Construction, a Chinese company, won the tender, issued by the DRC Copper and Cobalt Project SARL (DCP), a Congolese company, to supply and construct certain piling and civil works at a mining site in the DRC.
  • Two written agreements were concluded between Zongji and DCP, an interim agreement and a main agreement.
  • The interim agreement was very bare and did not contain any clauses relating to dispute resolution.
  • The main agreement contained an arbitration clause which provided for disputes to be resolved by arbitration in Sandton, Gauteng. It provided that arbitration would be governed by the Arbitration Act, 1965 and would be subject to the Rules for the Conduct of Arbitrations as published by the Association of Arbitrators.
  • Zongji began the works, however DCP then entered into merger negotiations with a company by the name of Kamoto Copper, and DCP instructed Zongji to suspend the works for 3 to 6 months. DCP then instructed Zongji to proceed with the works again which Zongji did, but then once again DCP instructed Zongji to suspend the works and ultimately DCP terminated the main agreement with Zongji. Such termination was not occasioned by Zongji’s fault, but appears to be a commercial decision related to the merger.
  • Zongji rendered four invoices to DCP for work done under the interim agreement, one of which was paid and the other three were not. Zongji also delivered two invoices under the main agreement for work done. Neither of which were paid. Zongji also rendered an invoice in respect of the suspension and termination, this too was not paid.
  • Negotiations then ensured between Zongji and DCP for the claimed amounts to be referred as disputes to arbitration.
  • In November 2010 the attorneys who had then been negotiating on behalf of DCP wrote to Zongji and informed Zongji that a merger agreement has been concluded between DCP and Kamoto Copper. As a result DCP had now been dissolved, and it presumed that Zongji would now pursue its claims against Kamoto Copper.
  • Correspondence then ensued between Zongji and Kamoto Copper, however they could not reach agreement on arbitration proceedings.

 

Relief Sought in the Johannesburg High Court:

  • Zongji then brought an application for a declaratory order from the High Court.
  • The purpose of the declaratory order was to establish that Kamoto Copper was obliged to arbitrate disputes between Zongji and DCP in Sandton in terms of the arbitration clause in the main agreement.
  • Specifically Zongji requested a declaratory order that the following disputes be deemed arbitrable:
    • Payment in respect of three invoices issued under the interim agreement
    • Payment in respect of two invoices issued under the main agreement
    • Payment in respect of suspension and thereafter termination of the main agreement.
  • The High Court held that it did not have jurisdiction to grant the relief requested and accordingly Zongji’s application was dismissed.

 

Issue

  • The issue for the SCA to decide was whether the High Court was entitled or obliged to grant the declaratory relief sought by Zongji.

 

Defences raised

  • The defences raised by Kamoto copper were as follows:
    • Firstly, that the court had no jurisdiction over it,
    • Secondly, that Kamoto was not bound by the arbitral regime agreed between Zongji and DCP in the main agreement, and
    • Thirdly, if it was so bound, this arbitral regime did not apply to disputes under the interim agreement

 

The Majority Judgment

  • The first question the court said it must deal with is whether it has jurisdiction, as without jurisdiction, it may not consider the merits.
  • Kamoto Copper argued there was no jurisdiction, relying on the fact that both parties are peregrine of South Africa, and both the main and interim agreements were concluded outside South Africa.
  • It was common cause that the lex arbitri is the Arbitration Act, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the Recognition and Enforcement of Foreign Arbitral Awards Act.
  • Zongji argued that the High Court has jurisdiction as it is the only court or at least the best placed court to pronounce on the arbitration agreement in terms of the lex arbitri.
  • The SCA held that both parties had overlooked the most important point – that the arbitration clause embodies an agreement that is distinct from the terms and agreement of which it forms a part.
  • The arbitration agreement must be given effect in accordance with its terms.
  • The terms of this arbitration agreement required that the parties submit disputes to arbitration in Sandton.
  • The arbitration agreement fell to be performed within the area of jurisdiction of the Johannesburg High Court, because the seat of the arbitration was within that area of jurisdiction.
  • It was common cause that a court must have jurisdiction to deal with certain matters concerning the arbitration, and it is obvious that the court that will have this jurisdiction is the Johannesburg High Court.
  • The arbitration clause also indicated that the arbitration would be subject to the Rules for the Conduct of Arbitrations as published by the Association of Arbitrators (the rules).
  • In accordance with clause 12 of the rules, the arbitrator has the power to decide any dispute regarding the existence, validity or interpretation of the arbitration agreement and may rule on his own jurisdiction to act. Further, where an arbitrator has made a jurisdictional ruling, a party who wishes to contest such ruling may do so in a court, only after the ruling has been given.
  • Accordingly the very issue on which Zongji sought a declaratory order fell to be dealt with by an arbitration tribunal first.
  • Accordingly if the High Court were to have pronounced on the issues requested in the declaratory order it would have acted contrary to the provisions of the arbitration clause.
  • The court then emphasises that appropriate deference must be shown for the autonomy of the parties to decide on the forum in which to resolve their disputes. The court quotes O’Reagan J in saying that “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”
  • The court accordingly holds that the forum selected by Zongji and DCP is that of a private arbitration.
  • The court also points out that if the arbitration tribunal gives effect to the arbitration clause, and makes an award in Zongji’s favour then Zongji can apply to have the award made an order of court, and it will then become enforceable under the New York Convention. If it makes an award against Zongji, then this is the forum which Zongji has chosen to deal with disputes.
  • Kamoto is in turn entitled to raise the question of jurisdiction with the arbitration tribunal. Further, if Kamoto feels that the arbitration tribunal exceeds its powers when making an award, then Kamoto may apply to have such award set aside in terms of Section 33 of the Arbitration Act.
  • The court concludes by noting that “if courts arrogate themselves the right to decide matters which parties have agreed should be dealt by arbitration, the likelihood of this country being chosen as an international arbitration venue in future is remote and extreme. Persons wishing to have their disputes resolved by arbitration do not wish the process to be retarded by constant recourse to courts.
  • The court accordingly dismisses the appeal.