NICK S FISHMONGER HOLDINGS (PTY) LTD ALMON MANUEL ALVES DE SOUSA DEFENDANT CLAIM AND COUNTERCLAIM IN CONTRACT CONTRACT PROVIDING

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1 IN THE HIGH COURT OF SOUTH AFRICA (SOUTH EASTERN CAPE LOCAL DIVISION) CASE NO: 1606/01 IN THE MATTER BETWEEN: NICK S FISHMONGER HOLDINGS (PTY) LTD PLAINTIFF AND ALMON MANUEL ALVES DE SOUSA DEFENDANT CLAIM AND COUNTERCLAIM IN CONTRACT CONTRACT PROVIDING THAT DISPUTES THEREUNDER BE DECIDED BY ARBITRATION WHETHER ORDER SHOULD ISSUE STAYING PROCEEDINGS PENDING DETERMINATION OF DISPUTES BY ARBITRATOR JUDGMENT KROON J: INTRODUCTION:

2 2 [1] The plaintiff, as franchisor, and the defendant, as franchisee, entered into a franchise agreement. [2] In terms of claims in convention and reconvention, respectively, the parties have sued each other for relief relating to, or arising out of the agreement, which each party avers has been cancelled by reason of the alleged breach thereof by the other party. In terms of the plea over filed by each party the claims of the other are resisted. [3] This judgment, however, concerns the validity of the point raised by the defendant in a plea in limine. Therein the defendant contends that by reason of an arbitration clause in the agreement the dispute between the parties relating to the plaintiff s claims should be referred to arbitration, and the plaintiff s action be stayed pending the arbitrator s determination of the dispute. [4] The plaintiff resists the defendant s contention. [5] At the commencement of the hearing of the argument on the defendant s plea in limine the plaintiff sought, and was granted (there being no objection by the defendant), leave to file an amended plea in reconvention. The amendment introduced a conditional special plea in terms of which it was recorded that the plaintiff did not admit that the defendant was entitled to the relief set out in his plea in limine, but the contention was raised that in the event of such relief being granted to the defendant, then the dispute raised in the counterclaim of the latter should similarly be referred for arbitration and the counterclaim stayed pending the arbitrator s determination of the dispute. [6] This latter contention was not disputed on behalf of the defendant. THE ARBITRATION CLAUSE: [7] The relevant provision is contained in clause 15.1 of the agreement, which reads

3 3 as follows: Any dispute between the FRANCHISOR and the FRANCHISEE in regard to the interpretation, the effect, the carrying out, the implementation or any other matter arising directly or indirectly out of this agreement shall be decided by arbitration. [8] The remaining subclauses of clause 15 provide for the mechanics of a referral of any dispute to arbitration. APPLICABILITY OF THE ARBITRATION CLAUSE: [9] That the disputes canvassed in the pleadings fell within the ambit of the arbitration clause was, correctly, not an issue between counsel, and nothing further need be said on that score. PROCEDURE: [10] A defendant who wishes to invoke an arbitration agreement has the option of using one of two methods to secure the staying of the court case to allow the arbitration to proceed: Either he must apply for a stay of the legal proceedings under section 6 of the Arbitration Act [No. 42 of 1965] or he must file a special plea requesting a stay under the common law. It must be stressed that the defendant has a choice of remedies: the provision of a statutory remedy in section 6 was not intended to deprive him of a plea under the common law. Butler & Finsen: Arbitration in South Africa: Law and Practice at p.63. (See, too, the cases there cited). [11] The defendant s recourse to the plea in limine was accordingly a valid procedure.

4 4 [12] The position in regard to the procedure followed by the plaintiff is, however, not clear. [13] S 3 (2) of the Act makes provision for an application to court by any party to an arbitration agreement for an order, on good cause shown, setting aside the agreement or directing that the dispute should not be referred for arbitration or ordering that the arbitration agreement should cease to have effect with reference to a dispute referred to arbitration. As with s 6 (1) (see Delfante v Data Electrical Industries Ltd 1992 (2) SA 221 (C)), the language of s 3 (2) is suggestive of a substantive application. [14] The plaintiff brought no such application. The first submission of Mr Beyleveld, who appeared for the defendant, was that, absent such an application, the plaintiff could not be heard to contend that it had discharged the onus (as to which, see below) of showing that the dispute(s) in question should not be referred to arbitration. His alternative submission was that, having regard to the fact that the defendant invoked his common law right to raise a special plea, the plaintiff was obliged at least to file a replication in which it alleged the grounds on which it resisted a referral of the matter to arbitration; and that, too, the plaintiff had failed to do. [15] The counter of Mr Schubart, who appeared for the plaintiff, to these submissions was the contention that it was open to the plaintiff to argue the matter on the papers, and if good cause appeared therefrom why the matter should not be referred to arbitration, the defendant s plea in limine should be dismissed. [16] I find it unnecessary to resolve the issue in question. For the purposes of this judgment I will assume, without deciding, that the plaintiff is entitled to adopt the course contended for by Mr Schubart. THE COURT S DISCRETION AND THE ONUS:

5 5 [17] Counsel were ad idem, and correctly so, that: (1) an arbitration clause does not oust the jurisdiction of the court (Universiteit van Stellenbosch v J A Louw (Edms) Bpk 1983 (4) SA 321 (A) at 333G H), and is no automatic bar to legal proceedings in respect of disputes covered by the agreement (Delfante at 226E F); the court has a discretion whether to call a halt to the proceedings to permit arbitration to take place or to tackle the disputes itself (Parekh v Shah Jehan Cinemas (Pty) Ltd 1980 (1) SA 301 (D+C) at 305G H); (2) the onus was on the plaintiff (which was resisting the referral to arbitration) to show that the matter should not be referred to arbitration (Universiteit van Stellenbosch at 333H). [18] The onus is a heavy one. As it was put in Universiteit van Stellenbosch at 334A: the discretion of the Court to refuse arbitration was to be exercised judicially, and only when a very strong case had been made out ASSESMENT: [19] In arguing the matter on the papers Mr Schubart, if I understood him correctly, raised four points: (1) the pleadings, both in convention and reconvention, were complete; both parties had incurred substantial costs in connection therewith; the matter was ripe for hearing; it would therefore be convenient for the court proceedings to continue; (2) the defendant himself, in filing his counterclaim, had had recourse to the court for the purpose of seeking relief; (3) on the plaintiff s pleadings (in convention and reconvention) it had not

6 6 anticipated that a dispute would arise; (4) on the pleadings there appeared to be no substantial dispute of fact. I will deal with these points seriatim. [20] I do not consider that the fact that the pleadings in the matter, including those in reconvention, have closed is of assistance to the plaintiff. The first step the defendant took in the proceedings was to file his plea in limine. As a matter of practice he was obliged to cause that plea to be followed by the plea over and the couterclaim. The plaintiff should have taken stock of the situation when the plea in limine was filed. If that plea was otherwise one that should have been upheld, the fact that costs in the litigation had been incurred cannot be a bar to the upholding of the plea (to hold otherwise would open the flood gates to an unwarranted frustration of a litigant s right to invoke an arbitration clause) and still less would the incurring of costs by reason of pleadings filed by the plaintiff after the plea in limine was filed, be a bar to the upholding of the plea. [21] The fact that the defendant himself utilised the court procedure by filing his counterclaim, is similarly not of assistance to the plaintiff. On a common sense approach the counterclaim must be viewed as a conditional one dependent on the court s dismissal of the plea in limine it could hardly have been the intention that if the plea in limine were upheld, the proceedings in respect of the counterclaim would nevertheless continue and not also be referred to arbitration. [22] I am not persuaded that it can fairly be said, even on its own pleadings, that the plaintiff did not anticipate that a dispute would arise. On the defendant s pleadings that anticipation should have been there. That is, however, an unnecessary debate. Whatever the plaintiff might or might not have anticipated in the matter of a dispute arising is neither here not there. Disputes, and material ones at that, have arisen and it is those disputes, which were envisaged in the arbitration clause, that the defendant wishes to be the subject of arbitration.

7 7 [23] I am also not persuaded that it can fairly be said that on the pleadings the ambit of the factual disputes between the parties is not substantial. But even if that were the position, that would, I venture to think, rather be a reason enhancing the case for arbitration. [24] I am therefore constrained to conclude that the plaintiff has failed to discharge the onus resting on it to show that the matter should not be referred to arbitration. The defendant s plea in limine must accordingly be upheld, subject thereto that the prayer contained in that plea (viz., that the plaintiff s claims be dismissed) must, as counsel conceded, be amended. [25] It follows that the plaintiff s conditional plea in reconvention must also be upheld, again with a similar amendment to the prayer (which, as presently worded, seeks the dismissal of the counterclaim). COSTS: [26] The defendant has achieved success in the matter and is therefore entitled to a costs order in his favour. The fact that, as requested in the plaintiff s conditional plea in reconvention, the dispute which is the subject of the counterclaim is also to be referred to arbitration, does not assist the plaintiff in the matter of costs. As already recorded, the counterclaim must be viewed as a conditional one dependent on the plea in limine failing, and on the upholding of that plea it follows as of course that the further dispute raised in reconvention must also be referred to arbitration. The very referral of the matter to arbitration is what the plaintiff unsuccessfully sought to resist. ORDER: [27] The following order will accordingly issue:

8 8 (1) The claims of the plaintiff against the defendant and the counterclaim of the defendant against the plaintiff are stayed pending the determination of the disputes between the parties by an arbitrator as provided for in clause 15 of the agreement in question. (2) The costs of the present proceedings will be paid by the plaintiff. F. KROON JUDGE OF THE HIGH COURT