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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

NOT REPORTABLE

Case No:  115/2011
In the matter between:

GUTSCHE FAMILY INVESTMENTS (PTY) LTD

First Appellant
WENDY HEATHER LYNCH NO

Second Appellant
BERNARD JOHN LYNCH NO

Third Appellant
PATRICK JOHN VERNON WILSON NO

Fourth Appellant

v

METTLE EQUITY GROUP (PTY) LTD

First Respondent
MICHAEL DAVID KUPER NO

Second Respondent
ARNOLD SUBEL NO

Third Respondent
ANDRE ROBERT GAUTSCHI NO

Fourth Respondent
ARBITRATION FOUNDATION OF
SOUTH AFRICA

Fifth Respondent

Neutral citation:
Gutsche Family Investments v Mettle Equity Group (115/2011)
[2012] ZASCA 4 (8 March 2011).

Coram:
Brand, Nugent, Mhlantla JJA and Boruchowitz et Petse
AJJA

Heard:

24 February 2012

Delivered:

8 March 2012

Summary:
Review of award by arbitration appeal tribunal in terms of
s 33(1)(a) and (b) of the Arbitration Act 42 of 1965 – no
‘misconduct’ on part of tribunal as contemplated in s 33(1)(a) –
not established that the tribunal committed any ‘gross
irregularity’ or ‘exceeded its powers’ in terms of s 33(1)(b).

________________________________________________________________

ORDER

On appeal from:
South Gauteng High Court, Johannesburg.
(Lamont J sitting as court of first instance):
The appeal is dismissed with costs on the attorney and own client scale and
including the costs of two counsel.
________________________________________________________________

JUDGMENT
________________________________________________________________

BRAND JA (NUGENT, MHLANTLA JJA AND BORUCHOWITZ et PETSE AJJA:

[1] This is an appeal against the dismissal of a review application by Lamont J
in the South Gauteng High Court, Johannesburg. The application was brought by
the appellants in terms of s 33(1) of the Arbitration Act 42 of 1965. It was aimed at
an award in favour of the first respondent, Mettle Equity Group (Pty) Ltd (Mettle) by
the second, third and fourth respondents, sitting as an arbitral appeal tribunal (the
tribunal). The appeal to this court is with the leave of the court a quo. Both the
application in the court a quo and the appeal to this court were opposed by Mettle
only.

[2] The issues that arose for determination will be best understood against the
background that follows. The first appellant is a company, Gutsche Family
Investments (Pty) Ltd, while the other appellants are cited as the trustees of the
Lynch Trust. I propose to refer to the company and the trust as the appellants.
During April 2003, the appellants sold the total shareholding in a company, Formex
Industries (Pty) Ltd, which they then held, to Mettle Operations Ltd for a price of
R24 million. In terms of the deed of sale R18 million of the purchase price was
payable against delivery of certain specified documents and the balance of R6

million by no later than 31 March 2004. Subsequently, Mettle Operations Ltd ceded
and assigned its rights and obligations in terms of the sale to Mettle.

[3] At the time of the transaction Formex mainly manufactured body parts for
the automotive industry. Mettle took the view that it was not possible to do a
technical due diligence and in its stead sought a number of warranties from the
appellants. In the event, the deed of sale included no less than 73 separate
warranties in favour of Mettle. In terms of clause 8.5 of the deed the appellants
jointly and severally indemnified Mettle against any loss or damage which it ‘may
sustain or incur from the breach of any one or more of the warranties’. These
warranties were destined to take centre stage in the dispute that subsequently
arose between the parties.

[4] In due course, Mettle paid the initial amount of R18 million in accordance
with the deed of sale. But on 31 March 2004 when the R6 million became due and
payable, it paid an amount of R1 483 270.11 only. In a letter of that date, which
accompanied the payment, Mettle claimed to set off the balance of R4 803 558.89
on the basis that this amount represented the loss it had suffered through the
appellants’ breach of several warranties. That triggered a dispute between the
parties. The deed of sale provided for the referral of the dispute to arbitration in
accordance with the rules of the Arbitration Foundation of South Africa (the fifth
respondent herein) and by an arbitrator appointed by the Foundation. The parties
also agreed to incorporate an appeal provision in the event that either of them was
dissatisfied with the arbitrator’s award.

[5] In their statement of claim the appellants essentially claimed the outstanding
balance of the purchase price as due and payable in terms of the agreement of
sale. In answer, Mettle filed both a statement of defence and a claim in
reconvention. In its statement of defence it did not deny that the part of the
purchase price claimed by the appellants remained unpaid. It pleaded, however,
that it had suffered a loss through the appellants’ breach of warranties which

exceeded the amount claimed by the appellants and that their claim had thus been
extinguished by set-off. It therefore prayed that the appellants’ claim ‘be dismissed
with costs, alternatively that an award is stayed pending the determination of
[Mettle’s] claim in reconvention’. The claim in reconvention relied on the same
breach of warranties by the appellants as a result of which Mettle allegedly
suffered a loss. Apart from interest and costs of suit, Mettle therefore claimed the
amount of its alleged loss.

[6] Central to the appellants’ answer to both the defence of set-off and the
claim in reconvention raised by Mettle, stood their reliance on clause 22 of the
deed of sale. It provided:
‘Breach
If either the Sellers or the Purchasers (hereinafter in this clause 22 “the Defaulting Party”)
shall be in breach of any one or more of their obligations in terms of this Agreement
including a Warranty referred to in clauses 8 and 9 and shall fail to remedy such breach
within 30 (thirty) days of receipt of written notice from the other Party (hereinafter in this
clause 22 “the Aggrieved Party”), the Aggrieved Party shall have the right to seek specific
performance of all the Defaulting Party’s obligations then due, or the right to cancel this
Agreement and to seek restitution, in either instance without prejudice to the right of the
Aggrieved Party to claim such damages as it may have suffered by reason of such failure
and further without prejudice to the right of the Aggrieved Party to seek an appropriate
order in terms of the provisions of Rule 22 (4) of the Rules of the High Court of South
Africa.’

[7] Relying on the provisions of clause 22 the appellants took exception to
Mettle’s claims on the basis that they were premature in that Mettle had failed to
give them notice to remedy their alleged breaches of warranty within 30 days. The
arbitrator dismissed the exception. His reasons, in broad outline, were that he
agreed with the appellants that in terms of clause 22, notice to remedy their
alleged breaches of warranty within 30 days was an essential prerequisite to
Mettle’s claim. He held, however, that at the exception stage Mettle’s letter of 31
March 2004 – which accompanied payment of the reduced amount – should be

accepted as proper notice in terms of clause 22. The appellants successfully
appealed this dismissal of their exception to a single appeal arbitrator. Mettle
thereupon applied to the South Gauteng High Court for the setting aside of the
appeal arbitrator’s decision, essentially on the basis that the dismissal of the
exception was not appealable since it did not constitute a final award. The
application succeeded in the High Court. The appellants in turn appealed against
that decision to this court which dismissed the appeal in a judgment since reported
as Gutsche Family Investments (Pty) Ltd v Mettle Equity Group (Pty) Ltd 2007 (5)
SA 491 (SCA).

[8] Four years after its initial start, the matter therefore returned to the arbitrator
for the hearing of oral evidence on the merits. Consistent with his earlier ruling that
Mettle’s letter of 31 March 2004 constituted the requisite notice in terms of clause
22, the arbitrator held at the outset that Mettle was debarred from relying on two of
its claims that were not mentioned in that letter at all. In consequence Mettle was
precluded from leading any evidence in support of these claims. For present
purposes I need say no more about these two claims than that they were
formulated in paragraphs 3.7 and 3.8 of Mettle’s statement of defence under the
headings ‘tool rework’ and ‘obsolete stock’, respectively.

[9] At the end of the hearing the arbitrator again considered the appellants’
reliance on clause 22. At that stage he confirmed that, on his interpretation of the
clause, it imposed a duty upon Mettle to notify the appellants in writing of any
breaches of the agreement and to afford them the opportunity to remedy such
breach within 30 days. Only if the appellants then failed to remedy the breach
would a claim lie against them. In addition, it is clear from the arbitrator’s reasoning
that, in his view, it mattered not whether the claim was for cancellation, specific
performance or damages. Whatever the claim, so he concluded, clause 22
imposed prior notice as an absolute prerequisite for any claim based on breach of
warranty.

[10] The next step for the arbitrator was to reconsider whether, in the light of all
the evidence he had heard since the exception, Mettle had indeed given the
required notice. After consideration he concluded that it had not. In consequence
he held that none of Mettle’s claims could therefore succeed; neither by way of a
defence reliant on set-off, nor by way of a counterclaim. In consequence he made
an award in favour of the appellants for the full outstanding balance of the
purchase price together with capitalised interest – which at that stage amounted to
R8 434 579.17 – as well as further interest on that amount, from date of his award
and costs.

[11] Despite this decision, the arbitrator acceded to a request by Mettle that he
should deal with the merits of its claims. By then it was virtually common cause
that the appellants had breached some of the warranties and that Mettle had
established losses in the amount of R1 047 150.50 as a result of those breaches.
The arbitrator further held that, apart from these, Mettle had proved additional
losses in an amount of R1 852 975 as a result of other breaches of warranty that
were denied by the appellants. The residual claims by Mettle, which pertained to
so-called press control panels, he found not to have been established.

[12] It is against that award that Mettle noted an appeal to the tribunal. Since
part of the notice of appeal found its way into the tribunal’s award, which is
challenged in these proceedings, I recite that part verbatim. It reads:
‘. . . [Mettle] hereby notes an appeal against those portions of the arbitrator’s decision
dated 28 May 2008 in which he held that:
1.
[Mettle] was obliged to give notice to [the appellants] in terms of clause 22 of the
sale agreement in order to found its defence of set off and its counter-claim against [the
appellants];
2.
insofar as [Mettle] was obliged to give notice to [the appellants] in terms of clause
22 of the sale agreement, it did not give such notice in respect of any of its claims;
3.
insofar as [Mettle] was obliged to give notice to [the appellants] in terms of clause
22 of the sale agreement, [the appellants] did not waive their right to be given notice in
respect of all its claims;

4.
[Mettle] did not prove its claim in relation to the press control panels;
5.
[Mettle] was not entitled to proceed with its claims as set out in paragraphs 3.7 and
3.8 of the statement of defence;
as well as the order of costs.’

[13] The appellants, in turn, filed a conditional cross-appeal. In broad outline
they contended that if the appeal were to succeed on any aspect, the arbitrator had
erred in the findings on the merits that he made in favour of Mettle. Eventually, the
tribunal split two to one on the interpretation of clause 22. The minority agreed with
the arbitrator’s interpretation. The majority, on the other hand, found that his
interpretation was erroneous. On a proper interpretation of the clause, so the
majority held, the notice requirement only pertained to claims for specific
performance and cancellation. It required no notice if the aggrieved party claimed
damages. Since Mettle’s claim was essentially one for damages resulting from the
appellants’ breach of warranties, so the majority held, its claim was not precluded
by lack of notice.

[14] In addition, the tribunal unanimously held that the arbitrator had erred in his
determination of the losses that Mettle had established. According to the findings
of the tribunal Mettle had succeeded in establishing losses of R3 974 750.42. As to
Mettle’s claim in paragraphs 3.7 and 3.8 of its statement of defence for ‘tool
rework’ and ‘obsolete stock’ the majority held that the arbitrator had erred in
preventing Mettle from leading evidence in support of these claims on the basis
that they were barred by lack of notice under clause 22. In consequence they
decided that these two claims should be remitted to the arbitrator for adjudication.
In this light the majority of the tribunal upheld the appeal against the arbitrator’s
award with costs.

[15] Since a proper understanding of the appellants’ challenge against the
majority award requires reference to its exact terms, a rather lengthy quotation of
those terms seems unavoidable. They read:

‘In view of our findings, [Mettle’s] appeal is to be upheld and [the appellants’] cross-appeal
fails. We accordingly make the following award:
(a)
[Mettle’s] appeal is upheld in respect of those portions of the Arbitrator’s decision
dated 28 May 2008 as are identified in paragraphs 1, 2, 4 and 5 of the appellant’s notice of
appeal . . . (subject to a reduction in the claim relating to control panels by an amount of
R130 202.82). The final amount for which [the appellants] are liable to [Mettle] is to be
calculated after the determination of [Mettle’s] claim referred to in (d) below;
(b)
[the appellants] are to pay the costs of [Mettle’s] appeal, including the costs
consequent upon the employment of two counsel;
(c)
[the appellants’] cross-appeal is dismissed with costs, including the costs
consequent upon the employment of two counsel;
(d)
[Mettle’s] claim as set out in paragraphs 3.7 and 3.8 of its statement of defence in
respect of tool rework and obsolete stock is remitted to the Arbitrator for adjudication.
(e)
The Arbitrator’s cost award is set aside and the question of costs, other than those
which have been determined in this appeal, is remitted to the Arbitrator for a decision once
all issues have been determined by him.’

[16] As I have indicated by way of introduction, the appellants’ challenge against
that award rests on the provisions of s 33(1) of the Arbitration Act 42 of 1965. That
section provides:
‘(1)
Where–
(a)
any member of an arbitration tribunal has misconducted himself in relation to his
duties as arbitrator . . . ; 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 . . . make an order setting
the award aside.’

[17] In its application papers the appellants relied on both sections 33(1)(a) and
33(1)(b). But the reliance on s 33(1)(a) appears to have been jettisoned at an
earlier stage and I believe rightly so. The ‘misconduct’ contemplated in s 33(1)(a)
has been held to denote some element of moral turpitude or male fides on the part

of the arbitrator (see eg Dickenson & Brown v Fisher’s Executors 1915 AD 166 at
176; Bester v Easigas (Pty) Ltd 1993 (1) SA 30 (C) at 36-37; Amalgamated
Clothing & Textile Workers’ Union of South Africa v Veldspun (Pty) Ltd 1994 (1) SA
162 (A) at 169C-D). A mere mistake cannot be said to constitute ‘misconduct’.
Since there was never any suggestion of male fides or moral turpitude on the part
of the tribunal, any reliance on s 33(1)(a) was doomed to fail.

[18] What therefore remained was the appellants’ challenge on the basis of
s 33(1)(b), that the majority of the tribunal not only exceeded its powers, but also
committed a gross irregularity in the conduct of the proceedings. Both these
concepts recently enjoyed full consideration and discussion by this court (see eg
Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA) paras 52 et
seq; Hos & Med Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing &
Consulting (Pty) Ltd  2008 (2) SA 608 (SCA) paras 28 et seq; Road Accident Fund
v Cloete NO 2010 (6) SA 120 (SCA) para 36). As I see it, further elaboration can
therefore serve no useful purpose. Suffice it therefore to distil the following three
principles from these decisions that are relevant for present purposes.
(a)
Errors of law or fact committed by an arbitrator do not in themselves
constitute grounds for review by a court under s 33(1)(b). Whether or not we agree
with the conclusions arrived at by the majority of the tribunal on the various
disputes between the parties, is therefore of no consequence.
(b)
In order to justify a review on the basis of ‘gross irregularity’ the irregularity
contended for must have been of such a serious nature that it resulted in the
aggrieved party not having his or her case fully and fairly determined.
(c)
Arbitrators, including arbitral appeal tribunals, are bound by the pleadings.
The only difference between the two in this regard, as I see it, is that on appeal the
pleadings also include notices of appeal and cross-appeal. Unlike a court,
arbitrators therefore have no inherent power to determine issues or to grant relief
outside the pleadings. Arbitrators who stray beyond the pleadings therefore exceed
their powers as contemplated by s 33(1)(b).

[19] Departing from these principles, the appellants’ objections against the
challenged award were essentially twofold. Firstly, that the tribunal exceeded its
powers by ignoring the dispute on the pleadings and the relief claimed in the notice
of appeal. Secondly, that this resulted in an award which entirely negated their
main claim against Mettle and thus deprived them of the opportunity to enforce that
claim.

[20] In developing these objections, the appellants pointed out that their claim in
convention, for the balance of the purchase price of the shares, was never
disputed by Mettle, neither in its pleadings nor in its notice of appeal. The relief
sought in the latter was that the arbitrator’s award be set aside and substituted with
an award upholding the plea of set-off and awarding the appellants the difference
between some R8 million (representing the outstanding balance of the purchase
price together with the capitalised interest) and some R4 million (representing the
sum total of the losses it claimed). In the alternative the notice of appeal sought an
award upholding both the appellants’ claim and Mettle’s counterclaim with the
implied corollary that set-off be applied thereafter.

[21] But, so the appellants’ argument continued, the tribunal ignored the relief
claimed in the notice of appeal and chose rather to uphold the grounds of appeal in
paragraphs 1, 2, 3 and 5 of that notice. Without any reference to their claim in
convention, the award then provides that the final amount for which the appellants
are liable to Mettle is to be calculated after determination of the outstanding claims
in paragraphs 3.7 and 3.8 of Mettle’s statement of defence. Since the arbitrator is
functus officio, save to the extent he has been empowered by the terms of the
appeal award, so the appellants’ argument concluded, they have been deprived of
their claim in convention in its entirety. All that the arbitrator is allowed to do in
terms of the tribunal’s award, so the appellants contended, is to determine the
amount for which they are liable to Mettle without any regard to the main claim
which by all accounts exceeded Mettle’s counterclaim by a substantial margin.

[22] It should be apparent that the appellants’ objection is exclusively based on
their interpretation of the majority award. But I do not agree with that interpretation.
That, in my view, renders the objection inherently flawed. As the appellants
correctly pointed out, it is clear from the notice of appeal that the appellants’ claim
in convention was never in dispute. The arbitrator awarded the full amount of that
claim to the appellants. In the notice of appeal Mettle sought the setting aside of
that award for one reason only, namely that it took no account of the counterclaim.
The main claim was therefore never challenged before the tribunal.

[23] As to Mettle’s counterclaim, it is further pointed out by the appellants, again
correctly, that even before the commencement of the proceedings before the
tribunal, it was clear that Mettle’s reliance on set-off could not succeed. Its claims
were patently not liquidated. Before the tribunal both parties therefore approached
the matter on the basis that all outstanding issues presented for determination
related to Mettle’s counterclaim and that any award in its favour on the
counterclaim would lead to a deduction of the amount awarded from the
appellants’ undisputed main claim. The tribunal simply adopted the same
approach.

[24] Following that approach, the tribunal first decided that the arbitrator was
wrong in excluding Mettle’s counterclaim in its entirety on the basis of clause 22 of
the deed of sale. It then proceeded to deal with the counterclaim on its merits. It
did so with reference to the issues raised in both the notice of appeal and the
conditional cross-appeal. It decided those of the issues thus raised that were
capable of determination on the available evidence and remitted the outstanding
two claims to the arbitrator for his adjudication. In conclusion the tribunal held that
the amount for which the appellants would be liable to Mettle could only be
calculated after determination of the outstanding two claims. Although the tribunal
did not expressly say so, its reference to ‘the amount for which the appellants are
liable to Mettle’ can only refer to the counterclaim. That is the only claim the
tribunal was asked to determine. Thus understood the award does not affect the

arbitrator’s award under the main claim at all. What remains to be done after final
determination of the counterclaim is for the amount so determined to be deducted
from the amount previously awarded by the arbitrator under the main claim.

[25] Once the award is understood in its proper context, the conclusion is
inevitable that the tribunal did not fail to decide an issue that was before it and that
it granted the very relief sought from it on appeal. What becomes equally apparent
is that the appellants’ fears of being deprived of their claim against Mettle were
completely unwarranted. It follows that the court a quo was correct in its finding
that the tribunal committed no gross irregularity nor had it exceeded its powers as
contemplated in s 33(1)(b).

[26] Mettle asked for attorney and own client costs, both in the court a quo and
on appeal. It relies on a provision to that effect in the share sale agreement.
According to established authority, a court will give effect to an agreement relating
to costs, unless good grounds exist for following a different route (see eg
Intercontinental Exports (Pty ) Ltd v Fowles 1999 (2) SA 1045 (SCA) para 26).
Since it is common cause between the parties that no such grounds exist in this
case, the court a quo rightly awarded costs in favour of Mettle on the agreed scale.
As I see it, this court should follow the same course with regard to the costs on
appeal.

[27] In the result the appeal is dismissed with costs on the attorney and own
client scale and including the costs of two counsel.

______________________
F D J BRAND
JUDGE OF APPEAL

APPEARANCES:

APPELLANTS:

R G Buchanan SC

E A S Ford SC
INSTRUCTED BY:
Rushmere Noah Inc,
Port Elizabeth

CORRESPONDENTS:
Webbers Attorneys
Bloemfontein

RESPONDENTS:

S A Cilliers SC

M A Wesley

INSTRUCTED BY:
Prinsloo Tindle & Andropoulos Inc
Johannesburg

CORRESPONDENTS:
McIntyre & Van der Post
Bloemfontein
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:
8 March 2012
Status:
Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.

GUTSCHE FAMILY INVESTMENTS v METTLE EQUITY GROUP

The Supreme Court of Appeal (SCA) today dismissed an appeal by the Gutsche Family
Investments (Pty) Ltd and the trustees of the Lynch Trust (the appellants) against an order
of the South Gauteng High Court, Johannesburg dismissing their application for review of
an award by the arbitration appeal tribunal in favour of Mettle Equity Group (Pty) Ltd
against them.

The appellants had referred a dispute between them and Mettle to arbitration. The dispute
concerned the payment by Mettle to the appellants of the outstanding balance of the
purchase price for the total shareholding in a company which the appellants had sold to
Mettle. Mettle had paid a lesser amount than that which was due in terms of the sale
agreement. In a letter accompanying the payment Mettle claimed to set off the remaining
amount on the basis that that amount represented the loss it had suffered through the
appellants’ breach of several warranties in the agreement. In terms of a clause in the

agreement the appellants jointly and severally indemnified Mettle against any loss or
damage which it might sustain or incur from the breach of any one or more of the
warranties. Mettle filed a counterclaim. The arbitrator made an award in favour of the
appellants for the full outstanding balance of the purchase price together with capitalised
interest, and dismissed Mettle’s counterclaim on the basis that it had not notified the
appellants of any breaches of the agreement and had not afforded them the opportunity to
remedy such breach within 30 days as required by the share sale agreement. Mettle
appealed to the tribunal.

The tribunal, by a majority, upheld Mettle’s appeal. It held that Mettle’s claim was not
precluded by lack of notice. It upheld part of Mettle’s claim and remitted the rest to the
arbitrator for adjudication after hearing further evidence. The appellants then applied to the
high court in terms of section 33(1) of the Arbitration Act 42 of 1965 to have the tribunal’s
decision reviewed and set aside, which application the high court dismissed with costs on
the attorney and own client scale.

Before the SCA the appellants argued that the tribunal had exceeded its powers by ignoring
the dispute on the pleadings and the relief claimed in the notice of appeal, and that this
resulted in an award which entirely negated their main claim against Mettle and thus
deprived them of the opportunity to enforce that claim. In rejecting these arguments, the
SCA held that the tribunal had decided all the issues presented to it and that it had granted
the very relief sought from it on appeal. It further held that the appellants’ fears of being
deprived of their claim against Mettle were completely unwarranted. In arriving at this
conclusion the SCA pointed out that the appellants’ main claim was never challenged
before the tribunal and that Mettle’s counterclaim was the only claim the tribunal was asked
to determine.