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REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA GAUTENG LOCAL DIVISION, JOHANNESBURG
CASE NO: 18627/2014 In the matter between: ESKOM HOLDINGS SOC LIMITED Applicant and KHUM MK INVESTMENTS & BIE JOINT VENTURE (PTY) LTD First Respondent KHUM MK INVESTMENTS CC AND BIE INTERNATIONAL ENGINEERS (PTY) LTD JOINT VENTURE Second Respondent JUDGE L I GOLDBLATT Third Respondent
(1) REPORTABLE: YES / NO (2) OF INTEREST TO OTHER JUDGES: YES/NO (3) REVISED.
…………………….. ………………………... DATE SIGNATURE
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SUMMARY
Arbitration – arbitration award – review based on gross irregularity,
misconduct, bias, alleged incompetence on part of Arbitrator – sec 33(1) of
Arbitration Act 42 of 1965 – and remittal to new arbitration tribunal in terms of
sec 33(4) of Act – estoppel – employer estopped from denying tender contract
with company – formally joint venture – tender contract – procurement policy
and procedure – illegality of contract – estoppel by conduct – requirements for
representation acts and correspondence – contracting party – alteration of
legal status by joint venture partnership tenderer into incorporated company.
______________________________________________________________
J U D G M E N T ______________________________________________________________ MOSHIDI, J:
[1] This application cannot succeed in neither its original relief claimed nor
in the form of the remaining prayer 2. It is an application in terms of sec 33(1)
of the Arbitration Act 42 of 1965 (“the Arbitration Act”), to review and set aside
a partial award (“the award”) made by the Arbitrator in respect of separated
issues in the arbitration.
THE RELIEF SOUGHT
[2] In the notice of motion dated 22 May 2014, the applicant set out the
relief claimed in the following terms:
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“1. Setting aside the award of the third respondent dated the 14th April 2014 which is annexure ‘FA10’ to the founding affidavit.
2. Referring all the disputes between the applicant and the first
respondent to a new tribunal to be constituted in the manner directed by the court.”
There was also a prayer relating to costs and further and/or alternative relief.
The order for costs against the second respondent and the Arbitrator was
sought only in the event of opposition to the application.
THE PARTIES
[3] The applicant is Eskom Holdings Society Limited, a public company
duly registered in terms of the company laws of the country (“Eskom”). The
first respondent is also a company duly incorporated in terms of the laws of
the country, with registration number 2009/01705/07. The second respondent
is a joint venture. The first and the second respondents are, respectively, the
first and the second claimants in the arbitration. In the context of the matter,
and for the sake of ease of reference, the first and the second respondents
will be referred to as “the company” and “the joint venture”, respectively, and
collectively as “the claimants”. The third respondent is retired Judge L I
Goldblatt of this High Court. He is the appointed Arbitrator in the arbitration
proceedings between the applicant (Eskom) and the claimants. I shall
henceforth refer to the learned judge as “the Arbitrator”.
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THE BACKGROUNDS FACTS
[4] The facts which gave rise to present proceedings have been fully set
out variously in the heads of argument. These may be summarised as
follows: On 16 April 2009, Eskom and the joint venture concluded a written
agreement, called a Professional Service Contract (“the agreement”). In
terms of the agreement, the joint venture was to render to Eskom, safety,
health environmental and quality inspection services (“SHEQ services”). The
services had to be rendered to Eskom on an ad hoc basis, as and when
Eskom required such services. Eskom required that the services be provided
on construction and installation sites, at mainly generation and/or
transmission projects, and also on power generation, transmission and/or
distribution equipment in and around South Africa.
[5] For what may later become relevant, the joint venture (the second
respondent) had to render services in terms of task orders (“task orders”),
given under the agreement. A task order was described as essentially, an
instruction by Eskom to the joint venture to render required SHEQ services on
particular terms after a proposal by the joint venture to render such services
and accepted by Eskom. The task order would typically set out, matters such
as, the nature of the services required by Eskom, the number and types of
resources required, the budget for the task order, and its duration. Eskom
contended that it issued approximately 57 task orders to the joint venture
whilst the agreement was running and in force. The claimants contended that
some services were, however, rendered without task orders at the instance of
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certain officials of Eskom. In the end, not much turned on this difference on
how the task orders were issued. It was also not in dispute that the joint
venture was not the only consultant that rendered SHEQ services to Eskom. It
was equally not in dispute that when the agreement was concluded, Eskom
was represented by Mr Sipho Tjabadi (“Tjabadi”), whilst the joint venture was
represented by Mr Byron Jansen van Rensburg (“Van Rensburg”).
[6] The contract continued but was terminated by Eskom on 14 November
2013. By the time of such termination, Eskom had paid more than R1 billion
under the contract. In this regard, Eskom claimed that the payment was
made to the initial consultant i.e., the joint venture. However, this was hotly
disputed by the claimants who alleged that it was the company, as opposed to
the joint venture, and that it is the company that rendered the services under
the contract with Eskom from 7 May 2010, until the contract was terminated
for a reason not mentioned in the contract. Indeed, the latter dispute formed
the main controversy later before the Arbitrator, as well as in the present
proceedings.
[7] It was also not in dispute that pursuant to the termination of the
agreement by Eskom, and during September 2013, Tjabadi was suspended
by Eskom. He faced disciplinary proceedings arising out of his conduct as
Eskom’s agent in the contract. Criminal charges of fraud were laid against
Tjabadi and another Eskom employee, Mr Themba Tibane (“Tibane”), if this
becomes necessary or relevant. It was not in dispute that the company’s
name was changed from XTLS Trading 109 (Pty) Ltd to Khum MK
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International and BIE Joint Venture (Pty) Ltd on 10 February 2010. A few
months later, on 30 August 2010, a meeting was held at the company’s new
offices (“the 30th August 2010 meeting”). What transpired at this meeting was
of significant importance in this matter.
FURTHER DEVELOPMENTS
[8] There were further developments. On 21 October 2013, the company
launched an urgent application in this court (“the court application”). In the
court application, the company sought as against Eskom urgent payment of
the sum of R12 100 797,28 (“the R12 million”), it alleged was due to it in terms
of the contract. Three days later, i.e. on 24 October 2014, the day that the
application was to be heard, Eskom and the company settled the matter at
court. The basis of the settlement was that Eskom would pay the company
R96 737 506,92 (“the R96 million”). At the same time, Eskom and the
company also concluded an arbitration agreement in terms of which, among
others, all disputes between them would be referred to urgent arbitration
under the Arbitration Foundation of South Africa (“AFSA”). On 25 October
2013, Eskom paid the R96 million to the company.
[9] On 4 November 2013 AFSA duly appointed the Arbitrator to preside
over the disputes that had arisen between Eskom and the company in terms
of the arbitration agreement. It is convenient, at the outset to refer to the
arbitration agreement. The important classes of the arbitration agreement, for
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present purposes, are clauses 2, 4, 5, 6, 7 and 8. Clause 2 provides as
follows:
“… The parties shall agree on the identity of the arbitrator on or before the 30th October 2013. If the parties cannot agree, AFSA should appoint the arbitrator on or before 2nd November 2013.”
Clause 4 provides:
“The respondent may have certain claims against the applicant, including claims relating to invoices already submitted and paid, and these disputes shall form part of the arbitration.”
Clause 5 provides that:
“The arbitrator shall determine the procedure of the arbitration.”
Clause 6 provides that:-
“The arbitrator shall have the power to make urgent interlocutory orders. In this regard the applicant specifically records that one of the disputes that will require determination is the respondent’s refusal to sign off certain time sheets that has the effect that the applicant cannot invoice the respondent.”
Clause 7 provides that:
“The respondent shall pay all approved invoices except where the respondent is entitled in terms of the provisions of the agreement to withhold payment, and only to the extent of the disputed amount.”
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Finally, clause 8 of the arbitration agreement provides that:
“All disputes arising after 30 October 2013 shall also form part of the arbitration.”
It is to be recalled that Eskom is the respondent referred to the in the
arbitration agreement.
THE FIRST URGENT APPLICATION
[10] In the middle of November 2013, the company launched an urgent
application before the Arbitrator which was set down for 18 November 2013
(“the first urgent application”). In the urgent application, the company sought
urgent ‘interlocutory relief’ in respect of three monetary claims, all amounting
to more than R161 million. Eskom filed an answering affidavit in which it
disputed the company’s claims. It was common cause that during the first
application, Eskom for the first time raised the defence that the company was
not the consultant it contracted with initially and that therefore, the company
was not entitled to any payments on invoices submitted to it (“the contracting
party defence”). In essence, Eskom contended for the first time that it was not
aware of the fact that the company had substituted itself as the contracting
party in the place of the joint venture. The reason for this late discovery
advanced by Eskom was that the contracting defence was discovered by its
external legal representatives shortly before the hearing of the first urgent
application. As a consequence, Eskom terminated the mandate of its first
legal team. However, the claimants disputed Eskom’s version on this aspect,
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and countered that up to that stage, everyone at Eskom, including its previous
legal team, had accepted that the company was in fact the party who
rendered the services in terms of the contract, and who was entitled to
payment. This dispute between the parties remained unresolved.
[11] The first urgent application was, however, not argued on the scheduled
day of 18 November 2013. The reason for this was that the parties, once
more, settled the application. The basis of the settlement was that Eskom
would pay an amount of R45 727 173,83 plus VAT (“the R45 million”), in
respect of the company’s September 2013 invoice. The payment was made
under protest with the reservation of Eskom’s right to reclaim this amount if
the contracting party defence was later upheld. On 29 November 2013,
Eskom paid the R45 million to the company. In December 2013 a similar
urgent application was launched by the company before the Arbitrator (“the
second urgent application”). In the second urgent application, the company
sought payment of an amount in excess of R106 million, based on alleged
balances owing and invoices submitted to Eskom up to October 2013. Eskom
filed opposing papers. The application was argued before the Arbitrator.
However, the application was dismissed for lack of urgency on 11 December
2013.
THE ARBITRATION PROCEEDINGS
[12] The arbitration proper commenced on 26 March 2014. At the hearing,
and by agreement between the parties, two preliminary issues had to be
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separated and heard first before the determination of any of the claimants’ 15
claims for payment. The two issues were a special plea by Eskom to the
effect that the second claimant (the joint venture) was not a party to the
arbitration agreement, and therefore had no right to join in the arbitration. The
second preliminary issue was Eskom’s contracting party defence.
[13] The last-mentioned defence on the pleadings before the Arbitrator
came to this: Eskom denied that it concluded any contract with the first
claimant (company), and/or that the first claimant is not the contracting party
and/or that the first claimant has no claim against Eskom under, in terms of or
in connection with the contract. On the other hand, the claimants pleaded that
Eskom had accepted and/or ratified the first claimant as the contracting party,
substituting the second claimant (joint venture) at the 30 August 2012
meeting. Further that, the second claimant altered its legal status to that of the
first claimant with the full knowledge and consent, including written consent, of
Eskom and on or about 27 May 2012 and/or 30 August 2010, and at various
occasions thereafter. The claimants further alleged that written consent,
among others, consisted of Eskom making payments of the various approved
invoices in the name of the first claimant, requesting and accepting the
company documents of the first claimant and annexure “O” to the claimants’
further particulars, being a letter of Eskom dated 11 June 2013.
[14] In the alternative, the first claimant pleaded that Eskom is estopped
from relying on the fact that the contract remained with the second claimant in
that it had represented to the claimants, orally and in writing through its
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employees and agents and by its conduct that it had accepted the first
claimant as the contracting party since 30 August 2010. In this regard, it was
contended that Eskom represented to the claimants that it had accepted the
first claimant as the contracting party by its conduct in that Eskom:
14.1 accepted invoices from the first claimant;
14.2 made payments of the above invoices to the first claimant;
14.3 sent written communication to the first claimant regarding the
execution of the contract;
14.4 accepted the first claimant as the contracting party at the 30
August 2010 meeting and/or ratified the position from then on;
14.5 the first claimant relied, to its prejudice, on Eskom’s mentioned
representations which, if the facts in Eskom’s special plea are
accepted, were misrepresentations. The first claimant’s
prejudice includes that it continued with the contract, and
incurred obligations, made payment to employees and
consultants as if it were the party that had contracted with
Eskom. In the end, the first claimant pleaded that Eskom is
accordingly estopped from denying that the first claimant is the
entity entitled to institute the claims against Eskom, and denied
that the first claimant has no claim against Eskom at all.
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THE ARBITRATOR’S AWARD
[15] Based on the above, as well as the evidence led before him, the
Arbitrator, after some four days of evidence and one day of argument,
delivered his award on 14 April 2014. In terms of the award, the Arbitrator
found that, the second claimant (joint venture) was not a party to the
arbitration; that Eskom is estopped from denying that in respect of the claims
in the arbitration, the first claimant was the consultant in terms of the contract.
He ordered Eskom to pay the first claimant’s (company’s) costs, including the
costs of two counsel arising out of the disputes before him, and postponed the
hearing of the matter to a date to be agreed between the parties, and failing
such agreement, a date to be fixed by him.
[16] In the course of the judgment, the Arbitrator, with reference to Eskom’s
contracting party defence, said:
“I do not intend analysing or repeating all the correspondence that passed between the parties over a period of four years; save to say that in no letter did the respondent explicitly agree or consent to the substitution which had taken place. Accordingly I cannot find and do not find that ‘written consent’ was given as required in either clauses Z8 or Z11 of the contract.”
[17] In regard to Eskom’s contracting party defence and the alleged
illegality of the contract since the second claimant altered its status to that of
the first claimant, the Arbitrator made the following finding:
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“Finally Eskom replicated that if the estoppel pleaded by the company was successful, this would validate an act prohibited by law viz section 217 of the Constitution, the Preferential Procurement Policy Framework Act 5 of 2000 and the Public Finance Management Act 1 of 1991 and the procurement provisions of the relevant Treasury Regulations. In my opinion, the defence is without merit as I have not found that Eskom breached any of the above provisions but have merely found that as between it and the company, it is estopped from denying that it contracted with the company. I am not legalising (which I cannot do). If Eskom has acted unlawfully, it must be punished and not the company which was entirely ignorant of the internal workings of Eskom. For these reasons I am not making any finding as to the legality or otherwise of Eskom’s actions.”
[18] The Arbitrator went further to state that:
“Further this matter seems to me to be a classic example of the principles laid down in Jajbhay v Cassim 1937 AD 537 discussed in The Law of Contract (2nd Edition) by R.H. Christie at pages 474 to 475 which I quote hereunder:
‘Having thus made clear what our law is not, the Appellate Division turned its attention to laying down what our law is. The law not being well settled, Strafford CJ went back to the first principles and said at 542:
“The two legal maxims which embody the principles which we must apply came from the Roman law of Justinian. The moral principle which inspired the enunciation of those two maxims is obvious and has often been expounded. It is to discourage illegality and immorality and advance public policy. So much is trite and certain, and our pronouncement of law on the matter before us must be in conformity with that principle.”’”
The Arbitrator went on to say that:
“Taking account of the fact that in many cases a plaintiff in seeking to escape from an illegal contract will base his claim on unjust enrichment, Stratford CJ laid down at 544 that, ‘public policy should properly take into account the doing of simple justice between the man and the man’, and that, ‘the rule expressed in the maxim in pari delicto potior condition defendtis is not one that can or ought to be applied in
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all cases that it is subject to exceptions which in each case must be found to exist only by regard to the principle of public policy.”
The Arbitrator then dealt with the conclusions reached by Stratford CJ on the
two maxims. I shall at a later stage revert to the topic of illegality or invalidity
in contract in the circumstances of the present matter.
ESKOM’S CASE
[19] In the replying papers before me, Eskom alleged that the respondents
have fundamentally misunderstood its case. Eskom denied that the present
application was “an appeal disguised as a review”. It is not Eskom’s case that
the Arbitrator simply misapplied the law or erred in relation to the relevant
legal principles. It was also not Eskom’s case that the Arbitrator misdirected
himself in respect of certain factual findings. The replying papers, read with
the founding papers, further asserted that Eskom was compelled to bring this
review because it was confronted with or by an Arbitrator possessed of a
misguided sense of justice that precluded him from bringing an objective mind
to bear on the evidence and law presented on Eskom’s behalf in respect of
what it called issues on which the entire case turned. As a consequence, so
the allegations continued, the Arbitrator misconducted himself in relation to his
duties as an Arbitrator, and in the process, committed a gross irregularity in
the conduct of the proceedings, thus preventing fair trial on the issues.
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[20] The allegations of misconduct levelled against the Arbitrator were
premised, briefly, on the following: he ignored the formidable body of
evidence of the representations that proved that Eskom did not recognise the
company as the contracting party but still considered itself to be contractually
bound to the joint venture; he disregarded virtually every legal impediment
that stood in the way of the company succeeding on the estoppel defence,
thus giving an award that was contrary to public policy in that it forced Eskom
to perform in terms of an illegal contract; he questioned Eskom’s witnesses
with a view to establishing facts in the company’s favour; in upholding the
estoppel, the Arbitrator relied on representations the company’s sole witness
admitted it did not rely on; he went far beyond simply deciding the matter
incorrectly; and he misconstrued the nature of the inquiry that he requested.
The illegality argument presented by Eskom was unassailable. In other
words, the contract concluded pursuant to the substitution of the joint venture
by the company was illegal. The Arbitrator’s finding that he had refrained
from deciding the illegality argument showed a fundamental misunderstanding
of the inquiry which the case required; and finally, Eskom contended that the
only reasonable inference that could be drawn from the above, is that the
Arbitrator misconducted himself within the meaning of sec 33(1) of the
Arbitration Act.
THE ARBITRATION TRANSCRIPT
[21] The transcript of the arbitration proceedings, excluding the addresses,
runs into some 543 pages, whilst the addresses in closing argument make up
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additional 169 pages. The annexures and heads of argument in this court are
excluded. I mention this in order to demonstrate the prolix nature of
paperwork in this matter. It was, however, necessary to have regard to all the
documentation in order to properly assess the veracity or otherwise of the
rather serious allegations made against the Arbitrator.
THE EVIDENCE
[22] I deal with the evidence led before the Arbitrator on the disputed
issues. The first claimant (Khum MK Investments CC and BIE International
Engineers (Pty) Ltd Joint Venture, called one witness. He was Van Rensburg.
His evidence on the transcript extend to some 165 pages. I deal only with the
crucial and salient aspects of his evidence. This was mainly on the formation
of the company, and what transpired thereafter and the ensuing litigation.
[23] He was the Managing Director of the company from inception in June
1998 up to the time of his evidence. His company is consulting engineers in
the field of quality management, specifically for mining, power generation and
petrol chemical.
[24] Prior to April 2009, Van Rensburg met with Mr MK Mohlala (“MK”), the
sole member of Khum MK Investments close corporation. The two formed a
joint venture and concluded a joint venture agreement for purposes of
submitting a tender to Eskom. The joint venture written agreement had, as
partners Khum MK Investments CC, a close corporation duly registered and
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incorporated, and BIE International Engineers (Pty) Ltd, a private company,
also duly registered and incorporated. The sharing of profits in regard to the
tender was 50% each. On 16 April 2009, the joint venture and Eskom entered
into the written agreement (“the contract”) under discussion, and in terms of
which the mentioned services had to be rendered to Eskom.
[25] Van Rensburg came into contact with various personnel at Eskom
during the existence of the contract. These included Ms Rulendree
Govender, Mr John Masango and Ms Zukiswa Sikani (“Sikani”) and later, Mr
Tjabadi. On his staff, he had Ms Bianca Griessel, an administrative
manageress and Ms Christine Traub, who looked after the projects and
deployment of personnel at Eskom. She also submitted the proposals,
negotiated start dates and revision of the various task orders. Ms Shenaz
Moosa was the manageress.
[26] Van Rensburg testified that the professional services contract, as
depicted in the trial bundle, was entered into between Eskom Holdings
Limited (the employer) and Khum MK Investments CC and BIE International
Engineers (Pty) Ltd Joint Venture (the consultants). The agreement was
signed by Mr Tjabadi on behalf of Eskom whilst Van Rensburg signed as
Managing Director on behalf of BIE International and MK on behalf of Khum
MK Investments Joint Venture as director.
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[27] Van Rensburg testified about the CM 29 when the company was
formed and the name amended on 19 March 2010 by the Company’s
Intellectual Property Registration Office (“CIPRO”). In essence, Van
Rensburg and MK bought a shelf-company and changed the name to Khum
Investments and BIE Joint Venture. They were the only two directors. Van
Rensburg testified that the amendment was at the suggestion of Tjabadi, the
General Manager at Eskom, who wanted a formal company. In his own words
Van Resburg said ‘that they were required to become a formal legal entity;
that would then be able to tender into the wider market place and to other
tenders for Eskom and we took that on board and we then decided to buy the
shelf company and change the name’.1 This was on 9 March 2010, an
important date in the context of this matter. The company’s trading name was
Khum MK Investments and BIE Joint Venture.
[28] Van Rensburg testified about the company’s registration as Value-
Added Tax (VAT) taxpayer with SARS which was effective from 1 February
2010 with registration number 4660255417. He explained why this
registration certificate only contained part of the company name, i.e. Khum
MK Investments and BIE Joint, instead of Khum MK Investments and BIE
Joint Venture (Pty) Ltd. Once the company was incorporated from a joint
venture, the bank account number remained the same. Nothing else changed
in terms of the shareholding between him and MK. This was accepted by the
bank.2
1 See transcript 35. 2 See transcript 39.
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[29] Invoices and time sheets were submitted to Eskom in May 2010 under
the name of Khum MK Investments and BIE Joint Venture or Joint Venture
(Pty) Ltd, the name of the company. Task orders were also generated by
Eskom in writing or orally for work to be performed by the company from time
to time. Initially, it was a small quantity of tasks orders at the end of 2009, but
increased in 2010.
[30] Van Rensburg testified about the first and the important meeting
between his company and Eskom’s representatives held on 30 August 2010
(again “the 30th August 2010 meeting”). The meeting was held at his
company’s premises at Weltevreden Park). At this meeting, Eskom was
represented by Tjabadi, Ms Phunda Dondashe, Ms Suzette Mathe and
Andrew Botes. Van Rensburg and his co-director, Mr MK, and other staff
members also attended the meeting. The agenda of the meeting and the
minutes thereof appear on pages 79 to 82 of the trial bundle. The minutes
reflected an important aspect having a bearing on this matter. This was that,
under the heading ‘Purpose of Meeting”, the second bulletproof point read:
‘Contractual and Legal Documentation to be Communicated through Andrew
(in terms of signing a new contract as the JV is now a (Pty) Ltd)’ (underlining
added). Van Rensburg testified that under this subject, his company intended
to let Eskom know that he and his company had now acceded to Eskom’s
request for them to become a (Pty) Limited company. Further, that the
company wanted to give feedback that the company had since been
registered with the relevant inspection authorities, as requested by Eskom.3
3 See transcript 48 lines 9 to 15.
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However, no new contract was ever presented by Eskom. On the contrary,
the company had continued to perform under the contract, and Eskom
continued to receive and accepted invoices and time sheets in the name of
the company and paid in terms thereof from 2010. At the same meeting, the
company also made to Eskom a power point presentation.4 The presentation
was headed, ‘MK Investments CC’ with bold capital letters, ‘BIE Khum JV
(Pty) Ltd’.
[31] According to Van Rensburg, and as reflected on the presentation, it
also covered the breakdown of the different roles of personnel; that the JV
was incorporated and operated in accordance with corporate governance
requirements; that shareholder agreement was signed; the company had
received BBBEE rating; and the company was up-to-date with its taxes. In as
far as internal development is concerned, the presentation showed that the
company had achieved 50% affirmative action-appointments of staff. The
minutes of the meeting also recorded certain positive comments made by
Eskom’s Tjabadi which read that he:
“Congratulated the JV for the effort the company was making in terms of services offered … Tjabadi was impressed to see that the company was focussed on the work at hand, happy with the ‘JV marriage’ and that the company was proudly South African – that we are local, empowered and what Eskom is looking for in a company …”
Van Rensburg testified that since the meeting, that was how his company
conducted business with Eskom. Further, that until November 2013, no one at
Eskom ever raised with him any difficulty with the fact that Eskom was now
4 See transcript 83 to 98.
21
dealing with a company. I must mention at this stage that the meeting of 30
August 2010 also minuted that, ‘a company profile for the JV is being
compiled together with the development of a “trading/s name” (shorter
version) and logo’. He said that the shelf-company was XTLS Trading 109
(Pty) Ltd, and which on 10 February 2010, became Khum MK Investments
and BIE Joint Venture (Pty) Ltd.
[32] He gave evidence on a letter dated 27 May 2011, which he received
from Eskom. The letter was written by Tjabadi, the General Manager: Quality
Department, and addressed to Khum MK Investments CC and BIE
International Engineering (Pty) Ltd JV.5 The letter requested a meeting at the
premises of the company. The letter stated that the key focus of the proposed
meeting would be on the progress made to date relating to the contractual
clauses Z8 and Z9 (i.e. BEE compliance and Skills Transfer). In this regard,
Van Rensburg said in-chief that essentially, Eskom was asking whether the
company had changed its BEE status by taking a black partner on, or
increasing the black empowerment in shareholding or in management, and if
so, a report back was needed. However, in his evidence, Van Rensburg said
nothing had changed at that stage. The shareholders in the company, namely
MK Mohlala’s close corporation and BIE Engineering (Pty) Ltd were the 50%
to 50% shareholders in the company. The individuals involved were the
same, the employees were the same, and the infrastructure of the company
was the same. All that had changed in the interim, as described above, was
that whereas the initial consultant was a partnership as a joint venture, it was
5 See transcript 100.1 to 100.2.
22
now a company, a legal entity. The latter change was at the behest of Eskom
and had been complied with.
[33] Van Rensburg testified about the several task orders issued by Eskom
subsequently. On 10 June 2011, Eskom issued a task order addressed to the
consultant, BIE International for the attention of the Managing Director, Van
Rensburg. It was accepted by the consultant on 14 June 2011. On 7
September 2011, Eskom issued another task order, i.e. BIE 0011, addressed
to the consultant, this time, Khum BIE JV. This task order was accepted by
the consultant.
[34] Van Rensburg testified about a SARS issued tax clearance certificate
(good standing) in favour of Khum Investments and BIE Joint Venture (the
trading name), and legal entity, Khum MK Investments and BIE Joint Venture
(Pty) Ltd, on 13 April 2012. The certificate was valid until 13 April 2013. The
tax clearance certificates were submitted on behalf of the company to Eskom
on an annual basis. On 29 September 2011, Eskom issued a further task
order, i.e. No. 0017, to the consultant, BIE International. It was accepted by
the company. And so too, a further task order, No 0018 issued on 1 October
2011. It appeared that the task orders were issued retrospectively since they
were accepted by the company before the date of issue. Be that as it may,
the task orders were issued by authorized Eskom representatives, accepted
by the consultant, task orders were carried out, invoices sent, and paid for by
Eskom. Regular updates at meetings took place, as well presentations on the
status of the contracting parties. Regular exchange of emails also occurred
23
between the parties, as testified by Van Rensburg. All Eskom’s requirements
regarding the contract were met, until about late 2013. At this stage, the
contract had been running since April 2009 and formally terminated by Eskom
on 14 November 2013. The contracting party defence was only raised by
Eskom in the arbitration proceedings in November 2013.
[35] In October 2013, the company (first claimant) gave instructions to its
attorneys of record, Breytenbach Mostert Skosana Attorneys Inc
(“Breytenbach Mostert”) to query with Eskom the non-payment of invoices
submitted from 30 August 2013, and amounting to some R120 million. This
was done on 10 October 2013. On 14 October 2013, Van Rensburg also
addressed a similar letter to Eskom, urging that the matter be attended to
urgently. On 15 October 2013 Eskom replied that the matter had been
referred to the legal department for attention. In short, the impasse that had
developed between the company and Eskom in regard to the non-payment of
issued invoices, terminated in urgent court proceedings, partial payments in
settlement were made, and finally the proceedings before the Arbitrator.
[36] Van Rensburg was cross-examined closely and extensively. The
cross-examination extends over some 170 pages. The joint venture which
initially contracted with Eskom became a legal entity with the express consent
of Eskom and by Eskom’s conduct. This was, despite the provisions of clause
Z3 of the contract. When Eskom required the joint venture to register a
company, Van Rensburg approached his auditors who offered one of their
shelf-companies which was registered for the purposes of Eskom’s
24
requirements. It was in September 2009. The tax clearance certificate issued
by SARS on 13 April 2012 in respect of the company was not the only one.
[37] He testified in regard to the meeting of 30 August 2010. Van Rensburg
said Eskom actually planned the fact that the joint venture was incorporating
into a company and described it as wonderful and that the company had
become proudly South African, enhancing BEE in the country. The meeting
was attended by the General Manager of Eskom, Tjabadi. The contract
documents were to be given to Mr Andrew Botes of Eskom to finalise but he
was thereafter moved from the contracts’ department. Mr Tjabadi was clear
that the newly formed company would thenceforth continue to render the
services under the contract. Van Rensburg thought so, more so that there
were no changes in the directors, the shareholding and the bank account. A
company registration was available as well as a tax clearance certificate of
the company and the company had obtained a BEE certificate registration.
[38] Van Rensburg denied that the words, ‘Khum MK Investments and BIE
Joint Venture (Pty) Ltd’ and ‘Khum MK Investments CC and BIE International
Engineers (Pty) Ltd Joint Venture’ were intentionally selected to be deceptive,
which led to terminology inconsistence.6 In this regard Van Rensburg said
that the ultimate responsibility lay with Eskom, to produce a new contract, as
agreed. His company was solely concerned with the rendering of services.
He conceded readily that pursuant to the registration of the company,
6 See transcript 155.
25
proposals to Eskom were not made in the name of the company, but that of
the joint venture.
[39] Although Van Rensburg conceded that when he changed the joint
venture to a company, he had to follow a formal process in Eskom, he
remained emphatic that the said changes were, however, accepted by Eskom
who was happy therewith, as instructions were carried out by making the joint
venture a legal entity. It was too much of a risk not to have complied with
Eskom’s request which would have prevented the company from being paid
for services rendered, or having the contract suspended. On being questioned
by the Arbitrator, Van Rensburg said he had preferred to remain with the
status of a joint venture rather than being compelled to form a company.
[40] Van Rensburg made a number of concessions regarding his
knowledge of the tender procurement process at Eskom. For example, he
was aware that when the joint venture tendered for the contract under
consideration, there was a multi-faceted evaluation process, including a BEE
or BBBEE evaluation, and that the purpose of such evaluation was for Eskom
to satisfy itself that the entity which is awarded the tender has the necessary
technical ability, financial ability and BBBEE credentials etc.
[41] Mr Van Rensburg was cross-examined about the meeting requested by
Eskom held on 6 November 2012. It was at the venue of the company
(consultant). The key focus of the meeting related to the progress made to
the contractual clauses Z8 and Z9, i.e. BEE Compliance and Skills Transfer.
26
The request for a meeting emanated from an email Eskom had sent. When
asked by the Arbitrator as to the meaning of the words in the email, which
read as follows:
‘How the BEE partner or newly formed BEE entity’s capacity is growing and has grown as a result of the implementation of clauses Z8 and Z9 e.g. acquisition of the companies, mergers with others, new partnerships secured …,’
and
‘resultant extent of localization realized or envisaged, and indication of any other business beyond Eskom that the BEE partner or BEE entity has successfully got or working towards,’7
Van Rensburg had the following to say:
“Well, to my mind it is very clear. It is the joint venture company that was formed and what it is looking to establish here was Khum, as a company being benefitted and what benefits were accruing to the black component of the joint venture company.”
[42] When cross-examined about an email addressed by Eskom to him at
Khum MK Investments CC and BIE Joint Venture (Pty) Ltd t/a MOJA Quality
on 11 June 2013,8 and whether he ever noticed that Eskom (per Tjabadi and
signed by Masango), addressed the email to the company and not the joint
venture, Mr Van Rensburg replied:
7 See transcript 230, lines 7 to 15, witness bundle 2, 418. 8 See witness bundle 2, 451.1.
27
‘You would have noticed that Eskom refers to the company and the joint venture and in a very, very muddled way. In this particular case, now I am referring to the company trading as MOJA Quality and of course I would have taken note of that …’
He, however, conceded that he may in fact not have noticed the name of the
addressee. In his view, the email did not mislead him since Eskom had
already accepted the company as the contracting party since 2010 and the
email or letter was merely confirmation of this fact. When put to Van
Rensburg that Mr Tjabadi would deny that he instructed Van Rensburg to
rather form a company, Van Rensburg said it was not true. He advanced two
reasons why Tjabadi wanted to deal with a formal company rather than a joint
venture.9 It was not true that he formed a company on his own accord and of
his own initiative, as was suggested in cross-examination. He agreed,
however, with the version put to him that, consequent to the 30 August 2010
meeting, where the company made a presentation to Eskom, he did not take
any formal steps to have the company becoming the contracting party. He
also agreed with the version that thereafter, i.e. the meeting last-mentioned,
the documents, all the correspondence between the parties, the task orders
etc displayed inconsistent conduct on the part of Eskom showing that the
company was in fact accepted as the contracting party. In re-examination,
Van Rensburg testified on Eskom’s document styled ‘Procurement And
Supply Chain Management Practice Note 06 of 2006’.10 The document also
deals with Eskom’s process of evaluation of BEE status for joint ventures. Of
further significance in the instant matter, is the definition and types of joint
9 See transcript 251 to 253 and 255. 10 Witness bundle 2, 625, and transcript 263, line 15.
28
ventures contained in the document. In this regard, the document provides as
follows:
“There are typically 3 (three) forms of joint ventures:
(1) A limited liability company whose share capital is held by the joint venture parties (an incorporated joint venture);
(2) An unincorporated association of persons having the legal
status of a partnership (no limited liability); and
(3) An unincorporated association of persons, specifically excluding the effects of a partnership, through written agreement (no limited liability).”
[43] Van Rensburg testified that when he commenced with a memorandum
of understanding, the joint venture fell within the second type. When he,
however, incorporated the same the joint venture, it fell into the first category.
The partners of the initial joint ventures were Khum MK Investments CC and
BIE International and Engineers (Pty) Ltd. These very same entities became
50% shareholders in the company. There was no change in the initial
personnel. When Ms Vishala Panday (“Panday”) of Eskom testified, she
confirmed that the Procurement and Supply And Chain Management Practice
Note 06 of 2006, was still in force in April 2009 when the contract forming the
subject matter of these proceedings was concluded.
[44] It is significant to note that, at the end of the re-examination of Mr Van
Rensburg, the transcript reveals the exchange between Eskom’s legal
counsel, Mr Gautschi SC and the Arbitrator as follows:
29
“ARBITRATOR: I think Mr Gautschi that some of this is a new matter. If you wish to?
MR GAUTSCHI: Yes, I have got no questions, Mr Arbitrator.”
THE EVIDENCE OF ESKOM
[45] Four witnesses testified on behalf of Eskom. They were Ms Helena
Theresa C D Nobrega (“Nobrega”). She was a director of a company called
XL Travel By Arrangement (Pty) Ltd. She testified briefly only, and was not
cross-examined. Nothing further need to be said about Nobrega’s evidence.
The other witnesses were Panday; Mr J S Masango (“Masango”); and Mr
Godfrey Quickfall (“Quickfall”).
[46] Panday, with an LLB degree and BCom Financial Management
qualification, was still employed by Eskom in middle management. Her
functions included the development of commercial policies, procedures,
procurement control, and management of the commercial regulatory universe.
In regard to matters pertinent to the present case, and specifically regarding
the change of the legal status of a contracting party pursuant to the granting
of a tender, she testified that the only procedure for such change would be a
‘modification’. In general, the successful tenderer would write to Eskom and
notify it of the change. The notification of the change would require the
approval of Eskom’s Tender Committee. However, there are several
suppliers of Eskom who change their legal status, and Eskom would normally
30
approve such change of a contracting party, depending on the objective of the
change, such as transformation and sustainability, and long term, of the entity.
[47] In cross-examination, Panday conceded readily that Eskom contracted
with different categories of joint ventures. According to her, it is immaterial
how the joint venture is constituted, i.e. whether the bidding joint venture is an
incorporated one, or whether it is a partnership or an association which is a
partnership. In this regard, her actual expression was, “that is correct, we do
not put a restriction on that”.11 The same question was put to Panday later,
and the reply remained the same.
[48] When confronted with certain of the contents of Eskom’s Procurement
And Supply Chain Management Practice Note, she confirmed that she drafted
the document. It was still valid in 2009. Panda was then questioned about
the contents of the document, at para 4, which reads as follows:
“For the purposes of BEE evaluation, preference for incorporated JV’s will no longer apply, unless the nature and the length of the project reasonably require incorporation in order to minimize commercial risk.”12
She was then asked if prior to 2006, Eskom had a preference for incorporated
joint ventures for BEE evaluation purposes. Her reply was significantly
startling. She replied:
11 See transcript 316, line 10. 12 See 626, witness bundle 2.
31
“At that point in time, I think there was a misunderstanding within Eskom that joint ventures had to be incorporated then somehow their may have been inconsistent practices of some people accepting only incorporated JV’s and the intention of this practice was to rectify and remedy how we were going to treat joint ventures from a standardized point of view.”13
The further exchange between Panday and the Arbitrator proceeded as
follows:
“ARBITRATOR: So, there was a, you say, misunderstanding?
MS PANDAY: Ja, I would not say it was some sort of mandate or imperative of policy that all JV’s had to be incorporated. I think that there was some misunderstanding in practice and we were trying to rectify that.
ARBITRATOR: And you were trying to rectify that. MS PANDAY: Yes.”
[49] Ms Panday was then questioned about the contents of clause Z8 of the
contract, which reads as follows:
“The employer requires all non-BEE compliant consultants to become BEE compliant. The employer requires that any arrangements (e.g. JV, shareholding, etc) shall ensure that at least 40% of the contract value is earmarked for Black South African owned and registered BEE companies. The consultant shall be given a period of 6 (six) months from contract award date to provide the employer with documentary proof of such arrangements (e.g. a signed legally binding Joint Venture agreement with the BEE company (ies), a shareholder’s certificate/agreement indicating shareholding percentage by BEE company(ies), etc …”
13 See transcript 317, line 15.
32
She was asked if, based on this provision, what the contract specifically
recognizes is that it may be awarded to an entity, a company, joint venture or
partnership, or whatever, that has no BEE credentials. She confirmed this.
Panday was further asked where the clause, states that when it has achieved
a BEE partner or shareholding, a consultant then has to go through the tender
process again. She confirmed that there was no such requirement. The
modification process pertaining to the change of status of an entity contracted
with Eskom, was an internal Eskom procedure. She conceded that, that
being the case, a party outside Eskom, contracting with Eskom, will be
completely oblivious to such internal process. Panday also conceded that the
change of a contracting party’s status, was not a compensation event.
However, her rather emphatic evidence on the existence of the modification
process, seemed to be contradictory to that of Quickfall, as seen below.
[50] Panday was also driven to concede that, if a contract file contains only
the documentation, SARS documentation, the BEE verification, the
contracting company’s documentation, and nothing else of a partnership, as in
this case, the only probable inference to be made therefrom was that those
are the documents of the contracting party.
[51] In regard to Eskom’s procurement system (SAP), which facilitates the
monetary and time-related control of contracts, and used to monitor and
effectively manage usage-draw-downs against contracts,14 Panday conceded
that the system is computerized and covers documents from the first one to
14 Witness bundle 2 at 670.
33
the last one of a contract. The SAP requires that all contracts and/or orders
must be loaded thereon. In re-examination, Panday testified that the
employer’s agent does not have the authority to change the contracting party.
She had no control over the compliance of Eskom’s internal policies in all
other transactions.
MASANGO’S EVIDENCE
[52] Masango testified that he had been employed by Eskom since 1998.
His evidence extends over 110 pages of the transcript. At the time of his
evidence he was the Manager: Contracts, in the Program Management Office
(“PMO”) or (“EPMO”) since about 2008. In the middle of 2012, he took over
from a colleague, Mr Kenny Nkwana (“Nkwana”), the contract under
discussion. Sikani was under his supervision. Sikani is dedicated to the
SHERQ panel, and reported directly to Ms Govender.
[53] Masango’s main functions included overseeing the execution of the
instant contract to ensure that there was proper compliance therewith. The
process of task orders in terms of the contract, would typically entail, the
rendering of services, and when required by Eskom from the consultant. This,
after discussions and consensus was reached with the latter. His team had to
ensure that all the requirements of the task orders, some internal, such as
budgets in place, were addressed. His team also had to ensure that Eskom’s
requesting manager had the appropriate authority to do so. In short, there
34
had to be assurance that the task orders were properly placed with the correct
signatures appended thereto.
[54] However, the actual payments to the consultants regarding the
execution of task orders, were not done by Masango or his department. This
function was carried out by Eskom’s Accounts Paid For Services (“APS”).
Soon into his evidence, the Arbitrator suggested to his counsel to lead Mr
Masango in giving evidence. He testified about the email of Sikani on 12 July
2012, querying the change of logo by the consultant. The email was copied to
internal colleagues, including Masango, Mr Jerry Chosa, Ms Busi Mthungwa,
Mr Leighton Itholeng and Mr Percy Mohlabane. Masango caused the change
of the logo to be investigated by his team. However, he himself did not do so.
There were several other emails exchanged between Sikani and other Eskom
employees in the commercial department about the change of the logo of the
consultant, notably 16 July 2012 and 17 July 2012. This culminated in a
meeting of all the parties involved on 24 July 2012. The meeting was at the
instance of Sikani. Masango testified that he attended the meeting. It is
significant that pursuant to that meeting, and on 11 August 2012, Sikani sent
an email to all Eskom’s employees involved, including Masango, and the
consultant, Van Rensburg, in the following terms:
“Reference is made to the meeting held on the 24 July 2012. The supplier has confirmed that there is nothing changed in Khum BIE Contract rather than the new trading name, MOJA QUALITY. The account no registration no, shareholding and directors is still the same. Therefore based on this information, commercial has confirmed that the new logo is accepted.”
35
Masango testified that the contents of the last-mentioned email were factually
correct. This is so, despite his evidence that it was important to Eskom that
the contracting party remained the same.
[55] Masango testified about the meeting held on 6 November 2012 where
the consultant made a presentation. He too, attended the meeting. This is the
same meeting about which Van Rensburg testified. He did not observe that
the name, Khum MK Investments CC and BIE International Engineers (Pty)
Ltd JV was the new name of the consultant joint venture. In regard to the
letter from Eskom written by the employer’s agent (Tjabadi), dated 11 June
2013, and addressed to Van Rensburg at ‘Khum MK Investments CC BIE
Joint Venture (Pty) Ltd t/a MOJA Quality’, Masango testified, once more, that
he did not notice the change in the name of the consultant. Neither did he
observe the changed name in the body of the letter. He, however, signed the
letter on behalf of Tjabadi. When questioned by his counsel as to why in his
letter of 9 July 2013 addressed to MK and Van Rensburg in the following
manner:
‘Managing Directors, Khum MK Investments CC and BIE International Engineers (Pty) Ltd Joint Venture (Khum BIE),’15
Masango said, inter alia, he did not take into account matters like the
addresses and the telephone numbers. Eskom was not working on the Khum
BIE contract only. There were several other consultants with contracts.
15 See transcript 392 and witness bundle 2 p 470.
36
Although he signed the letter, he said the addressee was inserted by Ms
Govender of Eskom.
[56] Masango testified that he started authorizing and signing task orders
from November 2012, as well as several others subsequently. This was done
together with Eskom’s employees in the Business Unit, after verification by
the contract manager. Once more, in so doing, he did not notice the change of
name in the contracting party. No one within Eskom alerted him to the
change. Had he known of the change, he would have followed Eskom’s
applicable formal process to ensure that the change of name was acceptable,
through the commercial department, and possibly, the legal route. This
evidence, as will be seen below, was in direct contrast to the evidence of
Quickfall who testified that he knew of no such formal process.16 He said that
at the time, he had regular and frequent interaction with both Van Rensburg
and MK of the consultant. On the question of him having had regular
interaction being repeated by his counsel, the Arbitrator simply interjected that
the question had already been answered.
[57] The cross-examination of Masango swiftly and undoubtedly cast some
doubt on his credibility. He was an electrical engineer by qualification. He
knew the difference between a company and a partnership well. He became
involved in the SHERQ panel towards end of 2011 or beginning of 2012.
When put to him that already by May 2010 there was issued to Eskom an
invoice or time sheet in the name of the company, he said it was before his
16 See transcript 398.
37
time.17 The requesting managers dealt with time sheets and they would
concentrate, not on the changed status of a joint venture, but rather on the
correctness of the hours captured. It was put to Masango that the only reason
why the change on the status of the joint venture was not noticed, was that
Eskom, in fact consented thereto. It was also put to Masango that he knew
that although the time sheets and invoices emanated from the company, the
initial contract was concluded with a partnership. When there was no
response from Masango, the Arbitrator asked him whether he wanted to
answer the questions. Masango then proceeded that the version put to him
was a possible explanation. He, however, attempted to qualify the
concession by saying that he did not pick up the change.
[58] Masango was confronted with the contents of an email from Sikani to
MK and Van Rensburg on 15 March 2012. In the email, Sikani enclosed
certain documents which could ‘be used as guidelines for BEE requirements.
Khum BIE presentation has been assessed …’18 Masango confirmed that the
assessment was in the name of the company, and not the joint venture.
[59] It was further put to Masango that the item or slide on the presentation
by the company which read:
‘Since we commenced with business we have incorporated the JV and it operates in accordance with corporate governance requirements,’
17 See transcript 422, lines 8 to 12. 18 See trial bundle 236.
38
and ‘Shareholders agreement is signed’,19 that this made clear reference to a company that was initially a joint venture
as a partnership, but now a company, Masango conceded.20 When
questioned further on this aspect, Masango tended to answer questions by
questions.
[60] Masango was also confronted with the contents of several emails
which emanated from Sikani. One such email was dated 15 March 2012,
referred to above. He conceded that Sikani did not question the change of
the name as at that date. One other email from Sikani was dated 12 July
2012. It was copied to Eskom’s Ms R Govender and Ingrid Mahlane, as well
as Masango himself. The email read:
‘Khum BIE is one of the companies in the SHEQ panel, having a contract with Eskom. The concern is that they have changed their logo into a new logo, please kindly advise whether this is acceptable as per commercial process.’
In this regard, Masango conceded that this email, as well as an earlier one
from MK of the joint venture dated 6 February 2012, made clear reference to
a company.21 The same applied to an email from Ms Christine Traub (the PA
to Van Rensburg) of the company addressed to Eskom’s Sikani and Ms
Govender on 3 February 2012. The bottom of the email shows that it came 19 See trial bundle 243. 20 Transcript 432, lines 12 to 23. 21 See transcript 439 to 440.
39
from Khum MK Investments and BIE Joint Venture (Pty) Ltd t/a MOJA Quality.
Indeed, there were other similar emails, namely the one sent by Ms Govender
to Ms Bianca Griessel and copied to Sikani, in which reference was made to
the company, Khum MK Investments and BIE Joint Venture (Pty) Ltd.
Masango conceded this in cross-examination. This, based on the fact that, the
account number, the registration number, the shareholding, and directors
remained the same.
[61] In the process of making the above concessions, Masango, however,
attempted to qualify his answers. The Arbitrator intervened and reminded
Masango that he had agreed to the concession in his evidence-in-chief,
namely that nothing had changed. Part of the exchange unfolded as follows:
“ARBITRATOR: That the words, the account number, the registration number and the shareholding and directors are still the same?
MASANGO: They are still the same. ARBITRATOR: That is what you were told at the meeting? MASANGO: Yes.”22
Thereafter, Masango rendered a long but somewhat convoluted explanation,
extending over two pages. The answer, really came to this:
‘He did not know the precise reason why the change of name was accepted, and not challenged by Eskom previously. The Khum BIE contract was placed some time in April 2009, and at that point it is possible that at the conclusion of the contract a change had taken place in the KHUM BIE entity into the company … Eskom could have accepted documents of the company and people who executed the
22 Transcript 439 lines 3 to 10.
40
commercial process, might not have picked up specifically if there had been a change in the identities of the people. Due to the lapse of time between October 2008 and April 2009, the identity of the joint venture could have changed and it could not have been picked up, and right from the word go, we could have received documents from a company and when you make reference to them now, you are quite right that you say to think that as far as we were concerned, we accepted as a company but now Eskom during its commercial process might never have intended to contract with the company …’23
[62] The Arbitrator intervened and said to Masango, “… all I am putting to
you really is very simple. You knew at this stage July 2012 that you were
dealing with a company. Forget about what happened …”
[63] Mr Gautschi SC, on behalf of Eskom, objected. In the end, Masango
gave two answers which were irreconcilable. The first was that, he personally,
was not aware that Eskom was dealing with a company but clearly a joint
venture. The other answer was that it is possible that right from the word go
the company name crept in, I cannot say with or without Eskom’s knowledge
because I was not part of it but I can clearly see that from the beginning from
April 2009, there is a distinct possibility that from there on the company
actually was the contracting party although the commercial process that had
an intention to contract with the JV.
[64] The re-examination of Masango did not in any way tipp the scales in
favour of Eskom on the crucial issue of the contracting party. The same
applied to the inferences to be drawn from the numerous correspondence
exchanged between the parties, the interchangeable use of the words
23 Transcript 440 to 442.
41
‘company’ and ‘joint venture’ in the correspondence, and the supine conduct
of Eskom’s officials involved in managing the contract. In fact, certain parts of
the re-examination, when closely scrutinized, bordered on cross-examination.
THE EVIDENCE OF QUICKFALL
[65] For the sake of completeness, Quickfall was the final witness who
testified on behalf of Eskom. He was employed by Eskom as a senior
manager, business enablement in the sustainability division, with some 24
years of service. He testified mainly on Eskom’s sustainability policy, which
includes climate change, safety, health, environment quality management,
renewables, research and development in matters such as presently under
discussion. He did not have any close and significant involvement or details
of the management of the contract prior to September 2013. There were,
however, certain significant aspects of his evidence which largely militated
against Eskom’s cause in these proceedings.
[66] For starters, he testified about an email from Eskom’s Dr Steve Lennon
to himself and others on 4 September 2013. The email conveyed the
suspension of Tjabadi of Eskom pending the outcome of an investigation
and/or disciplinary process. The investigation related to Tjabadi’s involvement
in the contract and irregularities connected with the SHERQ panel of
contractors, including the inflation of quotations form Khum BIE. He said that
Tjabadi declined to testify in the arbitration proceedings, apparently since he
was aware of the fact that he was solely accountable for what went wrong in
42
the contract in this matter. He was fully conversant with Eskom’s
procurement policies and procedures. However, he was wholly certain about
the implications where a joint venture consultant changes its legal status to a
company. He too, was oblivious to the change of the status of the joint
venture, until alerted thereto by Eskom’s second set of legal representatives.
[67] The record reveals that the questions put by the Arbitrator to Quickfall
during evidence-in-chief were really in search of clarity, and were helpful and
relevant to the issues in dispute, in my view. For example, at pp 488 to 489 of
the transcript, the Arbitrator said to Quickfall:
“I am going to put to you the actual facts here because what happened here, as far as I know, the two members of the consortium formed a company and the shareholders of that company were the two members of the consortium. So there was nothing to stop the, call it the black member of the consortium trading separately as a separate, that company continued to exist and would have similarly required the knowledge and expertise that it would have if they had been a joint venture rather than a company. It still exists independently. It was merely a shareholder in this company.”
Mr Gautschi SC did not object to the question but rather drew to the attention
of the witness the fact that the Arbitrator was merely seeking his views on the
proposition. The response of Quickfall was, inter alia, as follows:
“That obviously it makes sense, Mr Arbitrator … I personally think that I can agree with you but it should have been tested from a BEE point of view …”
43
[68] In cross-examination, Quickfall, like Masango, gave the assurance that
he knew the difference between a partnership and a company. He conceded
the various definitions of a ‘joint venture’ as defined in Eskom’s Practice Note
06 of 2006. He also conceded that the fact that a joint venture as a company
does not change its status as a joint venture. A joint venture can be in the
form of a company or a partnership. He also conceded that clause Z8 of the
contract, and based on the specialized nature of the SHERQ panels, and its
importance, the clause was inserted in order to allow a consultant (like a joint
venture) six months from the award of the contract to provide Eskom with
documentary proof that it has achieved BEE partners. The clause in fact
envisages that a joint venture can either be a partnership or a company.24
[69] Quickfall was also questioned about the import of clause Z11 of the
contract. The clause provides that:
“If the consultant constitutes a joint venture, consortium or other unincorporated grouping of two or more persons: these persons are deemed to be jointly and severally liable to the employer for the performance of the contract; these persons notify the employer of their leader who has authority to bind the consultant and each of these persons; and the consultant does not alter its composition or legal status without the written consent of the employer.”
Significantly, Quickfall conceded to the proposition put to him on behalf of the
claimants (respondents) that a joint venture, whether a company or a
partnership may alter its composition.
24 See clause Z8 – FA 58.
44
[70] Quickfall asserted that the development that the contracting party
became a company was never brought to his attention until much later. He
only became involved in the contract during September 2013. It was put to
him that that was unlikely based on, inter alia, the following: In his email to
Sikani on 17 July 2012, Eskom’s Mr Jerry Chosa wrote that Eskom had no
objection to the joint venture changing its logo to MOJA Quality (a company)
provided that the ownership remained the same; Ms K Pather’s answering
affidavit in the first urgent application, to which Quickfall signed a confirmatory
affidavit on 18 November 2013 in which reference was made to a partnership
and Eskom was told of the difference between a partnership and a company;
the urgent application was settled, resulting in Eskom paying the company
some R96 million; and that Eskom was fully aware of the change of the
contracting party.
[71] Quickfall’s ignorance of vital correspondence exchanged between the
contracting parties, and his failure to investigate several matters of vital
importance, remained worrisome. For example, he could not explain fully or
satisfactorily why a new joint venture such as Letshabile Quality Strategy and
Bureau Veritas International SA Joint Venture, changed status to a company.
There were other instances where Eskom either contracted with companies
from the outset, or where joint ventures changed status to companies.
[72] In my view, the most significant revelation during the cross-examination
of Quickfall was the following: he was driven to concede that he had no idea
45
what Eskom’s formal process is when, in terms of clause Z11 above, a joint
venture wants to change its status. In this regard, more specifically, he said:
“Mr Arbitrator, I do not know the process. I cannot point you to a process in Eskom … What I can say is that there is no doubt that we should have followed a process that is authorized by the adjudicating authority or some formal process, supply management process in Eskom.”
This evidence, it will be recalled, was in direct contrast with the evidence of
Masango about the existence of a formal process within Eskom on the
change of status of a joint venture after the award of a contract.
THE PROVISIONS OF SECTION 33(1) ARBITRATION ACT
[73] Section 33(1) of the Arbitration Act provides that:
“Where –
(a) any member of an arbitration tribunal has misconducted himself in relation to his duties as an arbitrator or empire; or
(b) an arbitration tribunal has committed any gross
irregularity in the conduct of the arbitration proceedings or has exceeded its powers; or
(c) an award has been improperly obtained, the court may,
on the application of any party to the reference after due notice to the other party or parties, make an order setting aside the award.
(2) [Not applicable] (3) [Not applicable]
46
(4) If the award was set aside the dispute shall, at the request of either party, be submitted to a new arbitration tribunal constituted in the manner directed by the court.”
THE RELIEF CLAIMED
[74] In closing argument, I gained the distinct impression that, Mr Gautschi
SC for Eskom, abandoned the relief in respect of prayer 1 of the notice of
motion. This relief relates to the setting aside of the award. If this is indeed
so, the only relief to be considered is that remaining in prayer 2 of the notice
of motion. The latter relief seeks an order ‘referring all the disputes between
the applicant and the first respondent to a new arbitration tribunal to be
constituted in the manner directed by the court’. However, in my view, the
consideration of the two prayers is inextricable in properly assessing the
merits of the matter in toto. The allegations levelled against the Arbitrator, as
sketched above, particularly that of being ‘possessed of a misguided sense of
justice that precluded him bringing an objective mind to bear on the evidence
and law, and of misconduct, and gross irregularity, were of a rather serious
nature’.25
THE APPROACH OF THE COURTS
[75] The approach of the courts in matters reviewing and setting aside
awards made in arbitration proceedings, has for long and consistently been
that an irregularity in proceedings does not amount to an incorrect judgment, it
25 See RA paras 9 to 15.
47
is rather a question of the manner of the proceedings. As far back as 1909, in
Ellis v Morgan; Ellis v Dessai,26 the Court said:
“But an irregularity in proceedings does not mean an incorrect judgment; it refers not to the result, but to the methods of a trial, such as, for example, some high-handed or mistaken action which has prevented the aggrieved party from having his case fully and fairly determined.”27
In Dickenson and Brown v Fisher’s Executors,28 the Court had to deal with
allegations of misconduct levelled against an umpire or arbitrator, in the
context of the Arbitration Act 24 of 1898 (Natal). In finally dismissing the
appeal, the Court (per Solomon JA),29 said:
“Now I do not propose to attempts to give any definition of the word ‘misconduct’, for it is a word which explains itself. And, if it is used, in its ordinary sense, I fail to see how there can be any misconduct unless there has been some wrongful or improper conduct on the part of the person whose behaviour is in question. The same word occurs in par .13 of the Act, where it is provided that:
‘the Court may upon motion remove any arbitrator or umpire who has misconducted himself in connection with the matters referred to arbitration,…’
Now if the word misconduct is to be construed in its ordinary sense it seems to me impossible to hold that a bona fide mistake either of law or of fact made by an arbitrator can be characterized as misconduct, anymore than a Judge can be said to have misconducted himself if he has given an erroneous decision on a point of law. Nor can I conceive of a Court removing an arbitrator for misconduct merely because he has made a mistake whether of law or facts … But in the ordinary circumstances where an arbitrator has given fair consideration to the matter which has been submitted to him for decision, I think it would be impossible to hold that he had been guilty of misconduct merely because he had made bona fide mistake of law or of fact.”
26 1909 566 (A). 27 Ibid 581. 28 1915 AD 166. 29 Ibid 176 to 177.
48
See also Clark v African Guarantee and Indemnity,30 at 77, where the same
principle of guarded interference by courts in arbitration matters was stated as
(and I mention it briefly only) as follows:
“The Court will always be most reluctant to interfere with the award of an arbitrator. The parties have chosen to go to arbitration instead of resorting to the Courts of the land, … It is true that the arbitrators must carry out their duties in a judicial manner. I do not mean that they must necessarily observe the precision and forms of a court of law, they must proceed in such manner as to ensure a fair administration of justice between the parties. If, therefore, an arbitrator has misconducted himself, has been corrupt, has heard one party and refused to hear the other, the Court will interfere and will set aside his award.”
[76] In Herholdt v Nedbank,31 and in the context of a CCMA arbitration
review brought in terms of sec 145(2)(a) of the Labour Relations Act 66 of
1995, the Court, in restating the grounds of review in arbitration matters,
declined to interfere. At para [25] of the judgment, the Court said:
“… For a defect in the conduct of the proceedings to amount to a gross irregularity as contemplated by s 145(2)(a)(ii), the arbitrator must have misconceived the nature of the inquiry or arrived at an unreasonable result. A result will only be unreasonable if it is one that a reasonable arbitrator could not reach on all the material that was placed before the arbitrator. Material errors of fact, as well as the weight and the relevance to be attached to particular facts, are not in and of themselves sufficient for an award to be set aside, but are only of any consequence if their effect is to render the outcome unreasonable.”
30 1915 CPD 68. 31 (701-212) [2013] ZASCA – (now reported at 2013 (6) SA 224 (SCA)).
49
See also Telcordia Technologies Inc v Telkom SA Limited, 32 and Lufuno
Mphaphuli and Associates (Pty) Ltd v Andrews,33 and Sidumo and Another v
Rustenburg Platinum Mines Ltd and Others.34
[77] In the context of the present matter, I found the article penned by the
learned Judge Brand JA, and styled, Judicial Review of Arbitrations Awards,35
rather instructive. The article ‘provides an overview of the role of the courts in
the review of awards made as a result of domestic arbitration undertaken
voluntarily’. Part of the summary of the article at 263, makes the following
observation:
“South African legislation governing the review of arbitration awards has been underpinned and applied so as to provide only narrow grounds for review and these have in turn been restrictively interpreted. In the result, while the courts have demonstrated a willingness to assist parties deprived of a fair hearing by procedural wrongs, they have limited their reviews to these alone and have refused jurisdiction in cases that requested their reviews of the arbitrator’s legitimate exercise of discretion. .The courts have therefore maintained their lack of jurisdiction to enquire into the correctness of the conclusion arrived at by arbitrators on the evidence before them. In the result, the integrity of the arbitration process is preserved save for in cases where the arbitrator himself has discredited it through mala fides, gross irregularity or the exercise of powers not conferred upon him …”
Significantly, the article reviewed most of the case law cited in this judgment,
as well as others. In my view, the summary is an apt and accurate reflection
of our law on this subject.
32 2007 (3) SA 266 (SCA) para [67]. 33 2009 (4) SA 529 (CC) 221. 34 2008 (2) SA 24 (CC) para [265]. 35 See Stell LR 2014 2 – 247 to 264.
50
[78] I chose deliberately to defer the application of the above principles to
the facts of the instant matter. This is so since the issues in dispute, as well as
the evidence led thereon, overlap extensively.
THE ARBITRATOR’S FINDING ON ESTOPPEL
[79] I deal with the Arbitrator’s finding on estoppel. Part of the complaint in
this regard was that the Arbitrator, ‘disregarded virtually every legal
impediment that stood in the way of the company succeeding on the estoppel
thus giving an award that was contrary to public policy in that it forced Eskom
to perform in terms of an illegal contract’, and ‘that in upholding the estoppel,
he relied on representations the company’s sole witness admitted it did not
rely on’.
[80] The trite essentials of estoppel are the following:36
(a) A representation by words or conduct of a certain factual
position;
(b) That the party acted on the correctness of the facts as
represented;
(c) That the party so acted or failed to act, to her or his detriment;
36 Amler’s Precedents of Pleading 6ed 166 to 167.
51
(d) That the representation was made negligently. The requirement
of negligence is not always an essential element; and
(e) That the person who made the representation could bind the
defendant by means of a representation.
In Hauptfleisch v Caledon Divisional Council:37
“The following statement of the doctrine of estoppel by Spencer Bower Estoppel by Representation para .15, was cited, apparently with approval, by Watermeyer, JA (as he then was) in Union Government v Vianni Ferro-Concrete Pipes (Pty) Ltd, supra at p 49:
‘Where one person (the representor) has made a representation to another person (the respresentee) in words, or by acts and conduct, or (being under a duty to the representee to speak, or act) by silence or inaction, with the intention (actual or presumptive) and with the result, of inducing the representatee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time and in the proper manner objects thereto.’”
The doctrine of estoppel is an equitable one and developed in the public
interest – see Trustbank van Afrika Bpk v Eksteen.38 In Concor Holdings
(Pty) Ltd t/a Concor Technicret v Potgieter,39 the Court upheld the
respondent’s counterclaim of estoppel and found that the appellant was
negligent. As to the test in regard to a representation made by conduct, the
Court said, that it is whether the representor should reasonably have
expected that the representee might be misled by his conduct, and if in
37 1963 (4) SA (C) at 56G to 57. 38 1964 (3) SA 402 (A) at 415. 39 2004 (6) SA 491 (SCA).
52
addition the representee acted reasonably in construing the representation in
the sense in which the representee did so.
APPLICATION OF LEGAL PRINCIPLES ON ESTOPPEL
[81] In applying the above principles to the facts of the present matter, both
in respect of the review and the Arbitrator’s finding on estoppel, the
application must fail for a number of reasons. Such a finding must, of
necessity, affect the applicant’s relief that all the disputes be referred to a new
arbitration tribunal, as dealt with later below.
[82] For starters, the serious allegations, including that of misconduct, gross
irregularity and bias, not understanding his mandate, ignoring Eskom’s
evidence, and treating Eskom’s witnesses unfairly, are truly not borne out by
the transcript of the proceedings, from which I have quoted extensively above.
On the contrary, the Arbitrator was fair to all witnesses. He questioned all
witnesses in a balanced manner, mostly seeking clarification, clearly since he
was appraised sufficiently of the issues in dispute before him. He indulged
the parties whenever necessary, by for example, allowing the matter to either
stand down or adjourned at the request of either of the parties. In the case of
Eskom, in particular, he allowed its counsel to lead Eskom’s witness,
Masango. In this regard, and in my view, the only slight dent regarding the
Arbitrator’s conduct during the proceedings, was on the occasion when he
asked Masango a question by “putting it to him”. However, this must be seen
in proper context. The Arbitrator was stating to Masango what the previous
53
evidence before him was. Indeed, when Mr Gautschi SC objected, the
Arbitrator promptly changed the manner of seeking clarity by saying to
Masango that he was asking the question. In any event, Masango
subsequently answered the question by agreeing to what the Arbitrator had
initially “put to him”. In my view, nothing really ought to be made of this
aspect. It begged the question if Eskom’s witnesses, and there were really
only two relevant ones, had been unfairly treated, why was there no sustained
objection, or even an application for the recusal of the Arbitrator, at the time.
Masango was, in any event, a largely unimpressive witness. He only became
involved in the contract much later, on his own version. The other relevant
witnesses, i.e. Panday and Quickfall, were not helpful on crucial aspects of
the case since they were not closely involved in managing the contract.
However, the evidence of Panday, as described earlier above, that there was
some confusion in Eskom’s policy regarding the requirement of incorporated
joint ventures during April 2009, was contrary to Eskom’s cause. So too, was
the evidence of Quickfall to the effect that there was no known formal process
in Eskom in the conversion of a joint venture to a company. It is for these
reasons that the evidence of Masango to the contrary, was not credible.
The complaints levelled against the Arbitrator during the proceedings, were
largely procedural in nature. The complaints overlooked the fact that
arbitration proceedings are not synonymous to court proceedings. In Lufuno
Mphaphuli, supra, O’Regan J said:
54
“… There is nothing in the Arbitration Act which excludes investigative proceedings, as I have reasoned above, and judges would be cautious not to interpret s 33(1) of the Act so as to require arbitrators to proceed as if they were courts of law. Such an interpretation would undermine the purposes of arbitration which are to provide flexible and affordable alternatives to judicial restitution.”40
Previously, in the same judgment, the learned Judge had said:
“…, it seems to me that the values of our Constitution will not necessarily best be served by interpreting s 133(1) in a manner that enhances the power of the courts to set aside private arbitration awards. Indeed the contrary seems to be the case. The international and comparative law considered in this judgment suggests that courts should be careful not to undermine the achievement of the goals of private arbitration by enlarging their powers of scrutiny imprudently … The Constitution would require a court to construe these grounds reasonably strictly in relation to provide arbitration.”41
See also more recently, Cool Ideas v Hubbard 2014 (4) SA 474 (CC) at para
[56].
[83] For all the above reasons, I conclude that the rather strongly worded
allegations of misconduct, and in particular that, ‘an arbitrator possessed of a
misguided sense of justice …’ were exceedingly exaggerated and unfortunate
in the extreme. Quite clearly, the somewhat robust exchanges between the
Arbitrator and Eskom’s witnesses (limited to Masango), and on the odd
occasion with Eskom’s counsel, cannot constitute sufficient grounds for
intervention.
40 Ibid para 259D-E. 41 Ibid para 235.
55
The allegations plainly had no merit at all. The Arbitrator in question is a
retired Judge. However, this fact alone, should not make his decisions and
conduct perfect all the time. The allegations, collectively viewed, do not justify
interference by this Court in that part of the award. The same applied to the
Arbitrator’s finding of estoppel based on the principles set out above, earlier in
this judgment. I deal with this aspect immediately below.
THE FINDING ON ESTOPPEL
[84] In my view, the Arbitrator correctly applied the principles relevant to
estoppel. I have set out in great detail the evidence showing Eskom’s or its
various employees’ conduct in managing the contract from April 2009.
Tjabadi, as stated earlier, was Eskom’s agent in the contract. His authority is
to carry out all the actions of Eskom with the exception of payment and
indemnity and insurance. The evidence showed that from about May 2010,
the company rendered invoices for services rendered to Eskom under the
contract. Prior to May 2010, the time sheets submitted, reflected the full
name of the company, not the joint venture. In addition, the company’s VAT
registration number appeared in all these invoices. This is significant as
Eskom’s financial department, or accounts department would reasonably
have been expected to amend their records in order to reflect the company’s
VAT registration number in their reportedly efficient and reliable SAP system.
This did not happen. The evidence sketched above, also show that the
company submitted its statutory documentation, i.e. BBBEE certificates and
tax clearance certificates, as testified by Van Rensburg, were submitted
56
annually without a murmur, from Eskom. It was not in dispute that the
company rendered the services under the contract to Eskom and that Eskom
paid the company, and not the joint venture, for such services until the dispute
arose much later along the way.
[85] In my view, one of the strongest factors exposed by the evidence, and
militating rather strongly against Eskom’s cause in this matter, was the
meeting of the 30th August 2010, pursuant to Tjabadi’s request that the joint
venture partnership had to be incorporated. This request, as stated before,
was in accordance with Eskom’s policy as contained in Option Z8 of the
contract. At that meeting, attended by Eskom’s representatives, including
Eskom’s authorized agent, Tjabadi, Eskom was informed unequivocally that
the initial joint venture was now a company. Khum MK Investments CC and
BIE Engineers (Pty) Ltd were equal shareholders in the company, with
nothing else having changed. The Arbitrator dealt fully with the numerous
correspondence and emails exchanged thereafter between the parties which
showed or suggested strongly that Eskom had accepted the company as the
contracting party. Eskom also thereafter did not assign a vendor number to
the joint venture partnership, but instead assigned the vendor number to BIE
International Engineers (Pty) Ltd (the company). It was not in dispute that this
vendor number was used for the duration of the contract for the joint venture
partnership and the company.
[86] The concession made by Van Rensburg in evidence that the
representations made by Eskom were not relied on, must also be seen in
57
proper context. This is so since Eskom made rather heavy weather of this
aspect. Van Rensburg made the concession under cross-examination (pp
256 to 257) that in terms of the contract, the contracting party may not change
its legal status without the written consent of Eskom. At the same time, it was
put to Van Rensburg that Tjabadi would deny that he instructed that the joint
venture should become a company.
[87] The concession did not advance Eskom’s cause in any significant way,
for a number of reasons. The evidence of Van Rensburg that they told Eskom
at the presentation meeting of the 30th August 2010, that the company was
already formed, stood. He was waiting for Eskom to produce new contract
documents. An internal process he did not know and/or process which is
plainly not only controversial, but also contradictory on the evidence. This,
bearing in mind the evidence of Panday, Quickfall and Masango. In addition,
although numerous employees of Eskom were mentioned in evidence as
having dealt with the contract, notably, Sikani, Govender, the accounts
department personnel, and Eskom’s representatives who attended the
presentation, including Tjabadi, all these staff members were not called to
testify. No reason was advanced for this omission. In the end, Van
Rensburg’s evidence on this aspect was not contradicted. It is also not
unreasonable to assume that the reported refusal of Tjabadi to testify for his
employer, as well as his subsequent suspension and disciplinary proceedings,
had something to do with what appears to be Eskom’s indifferent, inertial and
supine conduct in managing the contract. Furthermore, Eskom paid to the
58
company huge amounts under the contract when taken to court during
October 2013.
[88] As stated earlier in this judgment, it was only in the arbitration
proceedings that Eskom pleaded the contracting party defence, in that the
company could not rely on estoppel since it would validate an otherwise illegal
act (“the illegal defence”). I shall deal with the latter defence below. The
argument on behalf of the company that in the absence of any evidence from
the persons who authorize payments to the company, the only inference is
that Eskom was fully aware of the change of status to a company, accepted it,
and benefitted therefrom, had considerable merit. The numerous emails
exchanged between the parties recalled by the evidence referred to the
company as the contracting party. This was fortified by the acceptance of the
invoices, and their payment by Eskom. The further submission by the
company that the contracting party defence is clearly an afterthought on
Eskom’s part in an attempt to evade its legal obligations also has merit, in my
view. It is also my view that, the conduct of Eskom falls squarely within the
legal principles on estoppel, in particular in Hauptfleisch v Caledon Divisional
Council supra, at 56H, and the test enunciated in Concor Holdings (Pty) Ltd
t/a Concor Technicret v Potgieter, supra.
[89] In the result, the finding made by the Arbitrator in the award, that as a
result of the various correspondence, and various other actions by it, Eskom
is estopped from denying the truth of such representations, which were
believed by the company and acted upon by the company to its prejudice,
59
was in my view, correct and properly arrived at. It cannot be faulted in any
way.
THE ILLEGALITY DEFENCE
[90] I deal with the illegality defence. In the course of his judgment, the
Arbitrator made some interesting comments regarding this defence, as set out
before. In closing argument, I was urged rather strongly, and surprisingly by
both counsel, to nevertheless make a finding on this defence since the
Arbitrator declined to do so. It was a viciously tempting invitation. I decline the
invitation for the reasons that follow.
[91] The real issue in regard to this subject is whether, based on the totality
of the credible evidence, there was any illegality or unlawfulness on the part of
either Eskom or the joint venture and/or the company in respect of the
contract. Regard must be had to the applicable legal principles. The
contentions of Eskom, that, in the event it is found that it accepted the
substitution of the company for the joint venture, such substitution and
acceptance was illegal and/or invalid. It is unenforceable because it occurred
in contravention of sec 217 of the Constitution Act 108 of 1996 (“the
Constitution”), the Preferential Procurement Policy Framework Act 5 of 2000
(“the PPPFA”), the procurement provisions of the relevant Treasury
Regulations (“the treasury regulations”), and Eskom’s own procurement
policies and procedures.
60
THE COURTS’ APPROACH TO LEGALITY IN CONTRACT
[92] The principle regarding the approach of the courts to plainly illegal
contracts, has been trite for a long time and consistent. In the Jajbhay
matter,42 referred to in the Arbitrator’s award, at 550, the Court said:
“The principle underlying the general rule is that the Courts will discourage illegal transactions, but the exceptions show that where it is necessary to prevent injustice or to promote public policy, it will not rigidly enforce the general rule. Later on at p 552, the Court said:
‘And so, accordingly, the modern doctrine is established. Relief is not granted where both parties are truly in pari delicto, unless in cases where public policy would thereby be promoted.’”
In Cool Ideas v Hubbard,43 Jafta J, writing separately, but concurring in the
main judgment said:
“The general principle of our law is that an act performed contrary to statutory prohibition is invalid and has no legal effect. In explaining the principle in Schierhout Innes CJ said:
‘[W]hat is done contrary to the prohibition of the law is not only of no effect, but must be disregarded as never having been done – and that whether the lawgiver has expressly so decreed or not, the mere prohibition operates to nullify the act.’”44
[93] That matter concerned a contract concluded between Cool Ideas (the
builder) and a consumer (Ms Hubbard). In terms of the contract, Cool Ideas
undertook to build a house for the consumer. However, Cool Ideas was not
registered as a homebuilder under the Housing Consumers Protection
42 Jajbhay v Cassim 1939 AD 537. 43 At para [90]. 44 Schierhout v Minister of Justice 1926 AD 99 at 109.
61
Measures Act 95 of 1998 (“the Housing Protection Act”). Section 10(1)(b) of
the Housing Protection Act provides that only registered builders were entitled
to remuneration. There arose problems between Cool Ideas and Ms Hubbard,
including the non-registration as a builder by Cool Ideas. Ms Hubbard
instituted arbitration proceedings. The Arbitrator found in favour of Cool Ideas
but Ms Hubbard refused to comply with the award. Cool Ideas’ court action for
an order enforcing the award was opposed by Ms Hubbard on the ground that
Cool Ideas was not registered as a builder, and therefore barred from
receiving payment. The high court granted the order, but Ms Hubbard appeal
to the Supreme Court of Appeal and her appeal was upheld. Cool Ideas
thereafter appealed to the Constitutional Court. In considering whether the
Arbitrator’s award ought to be made an order of court, and in the end
dismissing the appeal, the Court said:
“What we are seized with here is therefore not the correctness or otherwise of the arbitral award, but with the question whether the award ought to be made an order of court if the court order would be contrary to a plain statutory prohibition. What is more, as stated at the outset, there is no challenge to the section’s constitutional validity. It cannot be expected of a court of law in such circumstances to disregard a clear statutory prohibition – that would be inimical to the principle of legality and the rule of law. To do so would amount to undermining the purpose of the legislation.”45
However, immediately thereafter the Constitutional Court, at para [56], went
on in the majority judgment to say:
“That is not to say that a court can never enforce an arbitral award that is at odds with a statutory provision. The reason is that the constitutional values require courts to ‘be careful not to undermine the
45 Para [55].
62
achievement of the goals of private arbitration by enlarging their powers imprudently … So it will often be contrary to public policy for a court to enforce an arbitral award that is at odds with a statutory provision. But it will not always be so. The force of the prohibition must be weighed against the important goals of private arbitration that this court has recognized’.” [underlining added]
The footnotes omitted, refer to Lufuno Mphaphuli supra, the facts of which the
Court found to be distinguishable from the facts in Cool Ideas.46 Indeed, the
most instructive principle emphasized by the Court in the latter case, is that
courts are themselves subject to the fundamental principle of legality as they
are bound to uphold the Constitution. This is based on sec 1(c) of the
Constitution which provides, that our country is, inter alia, a democratic state
founded on the values of the ‘supremacy of the Constitution and the rule of
law’, and sec 165(2), which provides that, ‘courts are independent and subject
only to the Constitution and the law, which must be applied impartially, and
without fear, favour or prejudice’.
[94] Although there are numerous other case law confirming the above
principles for example, Dexgroup (Pty) Ltd v Trustco Group International (Pty)
Ltd and Others,47 Millennium Waste Management (Pty) Ltd v Chairperson of
the Tender Board: Limpopo Province and Others,48 (also relied on by
Eskom), North East Finance (Pty) Ltd v Standard of South Africa Ltd,49 and
Mogale City Municipality v Fidelity Security Services (Pty) Ltd and Others.50 It
is indeed unnecessary for present purposes and in the light of the view I take
46 Ibid para 58F. 47 [2014] 1 All SA 375 (SCA). 48 2008 (2) SA 481 (SCA) paras [28] to [32]. 49 2013 (5) SA 1 (SCA). 50 [2015] 2 All SA 127 (SCA).
63
in the matter, to traverse all the case law. However, I must deal with two other
case law relied upon by Eskom, which I do immediately hereunder.
SOME OF THE CASE LAW RELIED UPON BY ESKOM
[95] The cases are, Premier, Free State, and Others v Firechem Free State
(Pty) Ltd51 and Municipal Manager: Qaukeni Local Municipality and Another v
FV General Trading,52 respectively. In the latter case, the facts were briefly
as follows: during November 2005, the respondent submitted a tender for a
contract offered by the second appellant (the municipality), to collect refuse.
Its tender was accepted and gave rise to the conclusion of an oral agreement
under which the respondent provided the required services during the period
November 2005 to June 2006. The validity of the agreement was not
challenged then. When the oral agreement was nearing its end, the municipal
manager (the first appellant) contacted the respondent, and requested certain
information. Without inviting any other persons to tender for such a contract,
the municipal council resolved to re-appoint the respondent as the second
appellant’s refuse collector, and tasked the manager to draw up a written
agreement for the respondent to sign. He did so, and presented it to the
respondent for its approval. The respondent accepted the terms offered, and
a contract was duly signed by both parties. The respondent duly proceeded
to render the services and was paid the agreed fee. However, later the
respondent was informed that the municipal council had resolved that its
services (the respondent’s) were no longer required beyond June 2007, and
51 2000 (4) SA 413 (SCA). 52 [2009] 4 All SA 231 (SCA).
64
that, although the respondent would be at liberty to tender afresh when the
second appellant called for tenders, the necessary statutory procedures would
be strictly adhered to in future. In a subsequent high court application, the
respondent contended that the written contract was indeed valid and of full
force and effect. On the other hand, the appellants, in both the high court
(which found in favour of the respondent), and on appeal, argued that as the
agreement had been concluded in breach of various prescribed statutory
requirements, it had been void ab initio, and was thus incapable of being
invalidly extended.
[96] In finally upholding the appeal, and at para [11], and onwards, the
Court said:
“In considering the validity or otherwise of the written contract …, it is necessary to recall that section 217(1) of the Constitution, couched in peremptory terms, provides, inter alia that an organ of state in the local sphere (such as a municipality) which contracts for goods and services ‘must do so in accordance with a system which is fair, equitable, competitive and cost-effective’. This constitutional imperative is echoed in both the Systems Act (Municipal Systems Act 32 of 2000 – Ed, and the Municipal Finance Management Act 56 of 2003 (‘the Financial Management Act’) as will become apparent from what is set out below.” [note emphasis]
I must hasten to observe that, in my view, the facts in both the Municipal
Manager: Qaukeni Local Municipality, and Premier, Free State, and Others,
supra, are clearly distinguishable from the facts in the present matter, and
that, for obvious reasons sketched below. Eskom relied heavily on the
contents of para [36] of the judgment in the latter case, which correctly and
consistently held that:
65
“… The delivery contract has to be ignored because to give effect to it would be to countenance unlawfulness. The province was under a duty not to submit itself to an unlawful contract and entitled, indeed obliged, to ignore the delivery contract and to resist Firechem’s attempts at enforcement. Its acts in doing so did not amount to an unlawful repudiation. Nor, for the reasons already given, could matters be saved by severance.”
THE DISTINGUISHABLE FACTS
[97] I mention the above legal principles merely to demonstrate that the
facts in the last-mentioned cases were vastly different to the facts in the
present matter for such principles to apply. In Municipal Manager: Qaukeni
Local Municipality, although the respondent had properly tendered and
awarded an oral agreement, on the renewal of his contract upon expiry, he
was re-appointed by the appellants clearly without following proper procedure.
Whilst in the Premier, Free State, and Others, although the tender was
properly awarded to Firechem, the ancillary contract contradicted the main
tender contract. There was therefore, unambiguous evidence of flouting the
applicable procurement procedures.
[98] The present matter presented an entirely different set of facts. In the
heads of argument, Eskom argued that, it was common cause during the
arbitration that, to the extent that the company purported to substitute itself as
the contracting party, and render services in terms of the contract, it did so
without having submitted itself to any procurement process whatsoever
[underlining added]. On this basis, so the argument proceeded, once this was
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established as a fact, the contract was automatically a nullity. The argument,
in my view, had no merit.
[99] The evidence showed that the joint venture partnership tendered, and
was awarded the contract. The very same joint venture partnership shortly
thereafter incorporated itself into a company, nothing had changed except the
company name. The directors of the company remained the same, i.e. MK
and Van Rensburg, and are equal shareholders in the company. There was
no change in personnel. The company rendered services and invoices to
Eskom from May 2010, the company’s VAT number appeared on all the
invoices. The incorporation of the joint venture was at the request of Eskom’s
agent, Tjabadi, and in compliance with Eskom’s policy as contained in clause
Option Z8. In terms of the contract, Tjabadi has the authority to carry out all
the actions of Eskom in the contract.
[100] Furthermore, before May 2010, the time sheets reflected the full name
of the company. At the 30th August meeting, Eskom’s representatives,
including Tjabadi, were informed that the joint venture was now a company.
The company submitted its statutory documentation to Eskom and complied
with all the instructions of Eskom pertaining to the contract. It was common
cause that the company rendered the required services to Eskom and that
Eskom paid the company for those services until the dispute arose much later
in the span of the contract.
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[101] In addition, neither Panday nor Quickfall had any personal knowledge
of the contract. Both were unable to point to any formal process in Eskom
when the consultant becomes BEE compliant or changes its legal status. In
fact, whilst Quickfall testified that he was not aware of any such formal
process in Eskom, Panday alluded to some confusion in Eskom in this regard
at the time. The numerous employees of Eskom (in excess of 12, I
counted),53 involved in the contract, in one way or the other, including Tjabadi,
were not called to testify as mentioned before. The Arbitrator, in these
circumstances, obviously accepted as credible and more probable the
evidence of Van Rensburg on this crucial issue. Masango came into the
picture much later after the conclusion of the contract. In any event, he made
a rather telling concession against Eskom, in particular, that it was probable
that right from the beginning, Eskom contracted with the company.
[102] As argued by the company, and quite correctly so in my view, there is
nothing in the contract that requires compliance with an unspecified
procurement process when there are name changes in the joint venture. The
terms of the contract were not varied or changed at all. It is only the status of
one contracting party that changed, most probably with the knowledge of
Eskom. It was in any event, a mere change from a partnership to a company.
As stated earlier, certain joint ventures contracting with Eskom had changed
their legal status, as revealed more fully in the evidence of Quickfall.
53 Tjabadi, Sikani, Ms K Pather, Mr Jerry Chosa, Mr Themba Tibane, Ms R Govender, Ms P Donashe, Ms Suzette Mathe, Mr Andrew Botes, Mr Kenny Nkwana, Ms Busi Mthungwa, Mr Leighton Itholeng, and Mr Percy Mohlabane.
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[103] In the book, The Law of Government Procurement In South Africa,
Professor Phoebe Bolton,54 deals with some instructive principles in regard to
the scope of variation after the conclusion of a contract. She says:
“… After negotiations, the preferred tenderer must remain the best tenderer in accordance with the criteria specified, and the contract must not be significantly different from the specified criteria. The question then arises whether the same is true after the conclusion of the contract. In short, must amendments to and re-negotiations of the concluded contract also be in compliance with the specifications that were laid down in the call for tenderers?
First of all it should be noted that, in practice, variations to existing contracts will be difficult to challenge. Those who participated in the tender process may not be aware of changes made to the contract during its operation and even if they are, it may be very difficult to prove loss in order to claim damages. This does not, however, deter from the fact that, in light of the principles of fairness, competitiveness and transparency, an organ of state and the preferred tenderer are not, and cannot be, at liberty to vary the terms of a contract awarded by way of a tender process. As is the case in the context of negotiations after the award decision, however, case law provides little clarity with regard to the extent to which an organ of sate and the preferred tenderer may vary or change the terms of the contract after the conclusion of the contract. … consensual variations should be allowed. Variations should, however, be minor and not so radical as to constitute an unfair obligation on the part of the contractor. Thus, variations should not give rise to a contract that is substantially or materially different from the contract initially advertised. In other words, the ‘new’ contract must not be significantly different from the contract contemplated by the competitive tendering process. If this is the case, the whole rationale behind a competitive tendering process would be undermined. There would be non-compliance with, in particular, the principles of fairness, transparency and competitiveness. The interests of consumers, ratepayers, voters and those who participated in the tender process (unsuccessful tenderers) may also be prejudiced.” [emphasis added]
These principles, in their importance, are not only pertinently applicable to the
facts of the present matter, but also throw some light in what actually could
54 Para 4.2 pp 204 to 205.
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have occurred here. In the first place, room is made for the concession made
by Masango of Eskom that it was possible that right from the beginning,
Eskom contracted with the company. He said that it is possible that from the
word “go”, the company could have “crept in” to as the contracting party. The
second emphasis made by the principles above, is that the variations after
conclusion of the award of the tender should not be significantly different from
the contract contemplated by the competitive tender process. This is exactly
what happened in the instant matter. Besides the change in name of the joint
venture, nothing else changed. The terms of the contract are clear and
constitute part of the procurement process. To now suggest that the company
ought to have subjected itself to the tender procurement afresh when the
name changed, would be unjust and unfair in the circumstances.
[104] The Arbitrator expressed the opinion that Eskom’s contention that there
was no compliance with the statutory provisions mentioned above, had no
merit. Although he found that Eskom did not breach any of the mentioned
provisions, but as between Eskom and the company, Eskom is estopped from
denying that it contracted with the company. The Arbitrator proceeded to
make no finding as to the legality or otherwise of Eskom’s actions. In my
view, the Arbitrator was correct for a number of good reasons. There was no
evidence at all to show that Eskom contravened any of the statutory
provisions applicable. A crucial witness, Tjabadi, did not testify for reasons
advanced by Quickfall. He was suspended and facing disciplinary
proceedings. His suspension is linked to his alleged conduct in the instant
contract. It might be that the envisaged disciplinary proceedings may throw
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some better light on what exactly transpired. However, all this is speculation.
Although the principles discussed above make it clear that an illegal contract
is unenforceable and that a court may raise the question of illegality mero
motu if such illegality appears ex facie the transaction, it was for Eskom to
plead clearly the illegality, and prove sufficient facts to enable the court to
come to its assistance since justice and public policy so demand. See in this
regard Yannakou v Apollo Club.55 In addition, in the present matter, there
was equally no evidence of wrongdoing on the part of the company. On the
evidence presented, it can hardly be contended that the substitution of the
joint venture partnership by the company took place on any illegal basis. Nor
can it be said that Eskom did not receive a fair trial on this aspect or any other
aspects in the arbitration proceedings. Eskom’s representatives, who had the
authority to manage the contract, in my view, were clearly negligent, and/or
indifferent, or displayed conduct of a supine or inertia nature. For these
reasons, my declination to make a finding on the illegality defence, as did the
Arbitrator, remained fortified. The application must fail on this ground too.
ESKOM’S ALTERNATIVE RELIEF OF REMITTAL
[105] In the light of the finding above, and that there was no gross irregularity
or misconduct or bias or misconstruing on the part of the Arbitrator, it remains
for me to deal with Eskom’s prayer 2, i.e. referring all the disputes between
the applicant and the first respondent to a new arbitration tribunal. The prayer
is premised on sec 33(4) of the Arbitration Act, which, as stated before,
55 1974 (1) SA 614 (A) at 623 to 624.
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provides that if the award is set aside, the dispute shall at the request of either
party, be submitted to a new arbitration tribunal to be constituted in the
manner ordered by the court. The prayer for remittal is plainly not in terms of
sec 32(2) of the Arbitration Act. However, in my view, the principles in
considering relief under these two sections are largely similar.
[106] At the commencement of this judgment, I alluded to the fact that
Eskom’s prayer for remittal is closely linked to the prayer for setting aside the
award. It follows that the reasons already accepted by the court for refusing to
set aside the award will apply with equal force to the present remittal request.
In the founding papers,56 it was merely stated that if the ‘court finds that the
award should be set aside Eskom will, in terms of section 33(4) of the
Arbitration Act, request that the further disputes between the parties be
submitted to a new arbitration tribunal …’. No other grounds were advanced.
[107] In these circumstances, it appears to me that Eskom, in order to
succeed, was obliged to allege and prove good cause for the remittal. At the
risk of attracting criticism for excessive reliance on Brand JA’s article, supra, I
feel obliged to state what is mentioned there under the heading ‘Remittal to
Arbitrator’,57 although in the context of a remittal under sec 32(2) of the Act:
“… In the past when the courts have found themselves in a position to choose between setting aside an award or remitting it to the arbitrator, they have regarded the type of situation referred to in section 33(1) as precluding a remittal. Most recently, in Leadtrain Assessments v Leadtrain, the Supreme Court held that:
56 See FA p 42, para 10. 57 Ibid at 256.
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‘The guiding principle of consensual arbitration is finality – right or wrong … it would be extraordinary if the conduct of an arbitrator that falls short of the strict constraints of s 33(1) were nonetheless to be capable of being set aside and committed for reconsideration under s 32(2). As was pointed out in Benjamin Sobac South African Building and Construction (Pty) Ltd, correctly, the effect of so holding would be to emasculate the provisions of s 33(1). However one approaches the question of what is ‘good cause’ it seems to us that it inexorably requires something other than mere error on the part of the arbitrator.’” [footnotes omitted]
[108] In Leadtrain Assessments (Pty) Ltd and Others, supra,58 the appeal
was about the costs order made by the Arbitrator. The essential issue was
whether the Arbitrator committed a misdirection in the exercise of his
discretion, and whether the part of his award was to be set aside and remitted
for reconsideration by the Arbitrator. At para [14] of the judgment, the Court
said:
“We have already said the review grounds in s 33(1) have been disavowed in this case. The submission was instead that misdirection on the part of the arbitrator provided in ‘good cause’ for the matter to be remitted under s 32(2). It is true that the term has a wide meaning – as this court said in South African Forestry Co Ltd v York Timbers – but the term falls nonetheless to be applied in the context in which it is used. That context in this case is the Arbitration Act, which is directed at the finality of arbitration awards.”
At para [16] of the judgment, the Court went on to state that:
“In this appeal the case that is made out amounts to alleged error on the part of the arbitrator without more. As Brand J observed in Kolber and Another v Sourcecom Solutions (Pty) Ltd and Others; Sourcecom Technology Solutions (Pty) Ltd v Kolber and Another, ‘a party to arbitration proceedings should not be allowed to take the arbitrator on appeal under the guise of remittal in terms of s 32(2)’. It seems to us
58 2013 (5) SA 84 (SCA).
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that that is precisely what is sought to be done in this case and the counter-application ought to have failed.”
[109] Whilst recognizing readily that the above cases dealt with remittal
under sec 32(2) of the Arbitration Act, and not under sec 33(4), as in the
present matter, the principles expounded therein should be of equal
application in the present matter, and in my view.
[110] In applying the above principles to the facts of the instant matter, the
conclusion must be inevitable. That is that, Eskom has not succeeded at all
to make out a case for remittal. This is so whether on the basis of good cause
or any other consideration. It is clearly not a remittal to the same arbitrator.
That arbitration has clearly not failed to deal with the issues before him. He
has done so, as indicated before. If the matter is remitted as now requested
by Eskom, the arbitration proceedings will have to commence de novo. This
will plainly be contrary to the noble principle of finality in arbitration
proceedings, which this Court cannot countenance. If that had to happen, the
inconvenience, prejudice, delay, and costs implications for the company, or
the claimants, will be severe, undoubtedly. The respondents and/or the
claimants are clearly entitled to have closure in this matter, especially since
Eskom has cancelled the contract for reasons outside the contract. In
addition, the relief to set aside the award has already been refused. On these
grounds too, I conclude that the remittal of the matter, as prayed for, ought to
fail.
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COSTS
[111] I deal briefly with the issue of costs, which is a discretionary matter.
There was no credible reason advanced why the costs should not follow the
result. In the heads of argument, the respondents (claimants) contended for
costs to be awarded on the scale as between attorney and client. This, on the
basis that the application had no merit at all since it was premised on the
basis that the Arbitrator’s conduct was ‘wrongful and improper’, or ‘dishonest’,
or ‘mala fide’, or ‘partial’, or and due to ‘moral turpitude’. The respondents
further argued that there was no basis for such allegations coupled with the
fact that Eskom persisted in pursuing such allegations. I agree. This was a
lengthy special motion case, characterized by the prolixity of papers and
annexures, as stated earlier in the judgment. It was a complex matter
involving huge sums of money. The urgency of the matter compelled this
Court to prepare judgment even during its long leave.
ORDER
[112] In the result the following order is made:
1. The application is dismissed with costs, including all the costs
previously reserved, if any.
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2. The costs, which shall be on the scale as between attorney and
client, shall include the costs consequent upon the employment
of two counsel.
__________________________________________
D S S MOSHIDI JUDGE OF THE HIGH COURT OF SOUTH AFRICA GAUTENG LOCAL DIVISION, JOHANNESBURG COUNSEL FOR THE APPLICANT A GAUTSCHI SC ASSISTED BY M SEAPE INSTRUCTED BY KOIKANYANG INC ATTORNEYS COUNSEL FOR THE RESPONDENTS G C PRETORIUS SC ASSISTED BY I M LINDEQUE INSTRUCTED BY BREYTENBACH MOSTERT SKOSANA INC ATTORNEYS DATES OF HEARING 1 AND 2 DECEMBER 2014 DATE OF JUDGMENT 4 JUNE 2015
