THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case no:  133/06
REPORTABLE
In the matter between:

GUTSCHE FAMILY INVESTMENTS (PTY) LTD
1ST APPELLANT
FORMEX HOLDINGS PTY) LTD
2ND APPELLANT
THE TRUSTEES FOR THE TIME BEING OF
THE LYNCH TRUST
3RD APPELLANT

and

METTLE EQUITY GROUP (PTY) LTD
1ST RESPONDENT
JEREMY JOHN GAUNTLETT SC N.O.
2ND RESPONDENT
THE ARBITRATION FOUNDATION OF
SOUTHERN AFRICA                                                     3RD RESPONDENT

Before:  Harms ADP, Farlam, Jafta, Ponnan, Cachalia JJA

Heard:  19 March 2007

Delivered:  29 March 2007

Summary:
Jurisdiction – Arbitration – In the absence of an express agreement an appeal
arbitrator is not entitled finally to decide his own jurisdiction.

Neutral citation:  This judgment may be referred to as Gutsche Family Investments v Mettle
Equity Group [2007] SCA 45 (RSA).

CACHALIA JA
[1] This is an appeal against a judgment of the Johannesburg High Court (CJ
Claassen J) reviewing and setting aside an appeal arbitrator’s award. It deals with
whether an arbitrator’s dismissal of an exception is appealable and also examines the
appeal arbitrator’s jurisdiction finally to determine this question in the context of an
arbitration agreement.

[2] The appellants and first respondent entered into a sale agreement as sellers and
purchaser respectively. The agreement required disputes arising therefrom to be
referred to arbitration. During April 2004 the appellants referred such a dispute to
arbitration. It involved a claim in an amount of R4 803 558.89 against the first
respondent, which they alleged was due and payable to them in terms of the
agreement. The first respondent filed a statement of defence and a counterclaim to the
appellants’ claim admitting that it was indebted to the appellants in the amount
claimed, but pleaded that such indebtedness was extinguished by set-off arising from
losses it had suffered in the sum of R5 398 394.91 in consequence of the appellants’
breach of warranties contained in the agreement. In its counterclaim the first
respondent claimed payment of that amount from the appellants.

[3] The appellants took exception to the counterclaim on two grounds. First they
averred that the claim was premature in that the first respondent had failed to comply
with its contractual obligation to notify them of the alleged breaches within 30 days
of their occurrence; secondly they asserted that the first respondent’s claim was not
liquidated and hence could not be set-off against the amount admittedly owed. In
response the first respondent sought to amend its pleading, but the appellants objected
to the proposed amendment on the basis that it would not cure the defect complained
of.
[4] The arbitrator dismissed the first exception. In relation to the second, he upheld

it to the extent only that the first respondent’s claims did form part of the schedule of
liquidated claims, but not those that were not. He thus declared that the appellants
were not entitled to an award in their favour at that stage.

[5] The appellants sought to appeal against the arbitrator’s ruling dismissing the
exception in part to the second respondent, the appeal arbitrator. The first respondent,
however, objected to his jurisdiction on the basis, so it maintained, that the parties
had agreed on an appeal procedure (‘the appeal agreement’) against the arbitrator’s
final award only, not against interlocutory rulings. The dismissal of the exception,
being in the nature of a ruling and not final in effect was, the first respondent
submitted, not appealable in terms of the appeal agreement. The parties however
agreed that appeal arbitrator could determine both the appealability issue and, in the
event that he decided this against the first respondent, also the merits of the disputed
claims in a single hearing.

[6] The scope and content of the appeal agreement was not contained in a single
document but had to be gleaned from the correspondence that had passed between the
parties before the arbitration commenced. The correspondence was made available to
the appeal arbitrator who, after considering it, concluded that the arbitrator’s ruling
was appealable. He thus dismissed the jurisdictional objection and proceeded to
decide the merits of the dispute in the appellants’ favour.

[7] The first respondent then instituted review proceedings in the Johannesburg
High Court to review and set aside the appeal arbitrator’s award on the basis that he
had wrongly assumed jurisdiction over the appeal. The High Court upheld the first
respondent’s interpretation of the appeal agreement (as contained in the
correspondence) as envisaging a single right of appeal against a final award only and
hence also its jurisdictional objection. It consequently set aside the appeal arbitrator’s
award and also refused the appellants leave to appeal. The appeal is with leave of this

court.

[8] In this court the first respondent no longer contends, as it did before the two
other tribunals, that the appeal agreement limits appeals to a single appeal against a
final award only. It now contends that their agreement extended only to any appeal
that this court would consider appealable – and because, so it contends, according to
this court’s jurisprudence the dismissal of an exception is not appealable, the appeal
agreement does not permit an appeal against a dismissal of an exception. This is the
first issue in this appeal; the second is whether the appeal arbitrator could finally
determine this issue in the context of the appeal agreement.

[9] As I have mentioned, the sale agreement contained an arbitration clause –
hence the referral of the disputed claims to arbitration. The clause made no provision
for an appeal against any award of the arbitrator, but it did provide for disputes to be
‘submitted to and decided by arbitration in accordance with the rules of and by an
arbitrator or arbitrators appointed by, the Arbitration Foundation of South Africa’
(AFSA).

[10] The AFSA rules relevant to this appeal are the following: Rule 22.1 provides
that when the parties (who have agreed to arbitration according to AFSA’s rules)
have in writing agreed that an interim award or the final award of the arbitrator shall
be subject to a right of appeal, ‘the following rules shall, save to the extent otherwise
agreed by them in writing, apply’. Rules 22.2 to 22.7 then deal with procedural
matters: the time limits and requirements of a notice of appeal and cross-appeal;
payment of fees to the AFSA Secretariat; the appointment of the appeal arbitrator or
arbitrators; and the determination of the time and place for the appeal hearing. Then
follows rule 22.8, which deals with and circumscribes the powers of the appeal
arbitrator or arbitrators –

‘22.8 The nature of the appeal and cross-appeal, and the powers of the appeal arbitrator or
arbitrators shall, save to the extent that the written agreement between the parties or this
article 22 provides otherwise, be the same as if it were a civil appeal and cross-appeal to the
Appellate Division of the Supreme Court of South Africa.’ (My emphasis.)

[11] Thus, in terms of the arbitration clause, which incorporates the AFSA rules,
including rule 22.8, the appealability of any interim award and the jurisdictional
power of the appeal arbitrator depend on whether the matter would be appealable if it
were a civil appeal to the Appellate Division of the Supreme Court of South Africa
(now the Supreme Court of Appeal (the SCA)) – unless the written agreement
between the parties or article 22 of the AFSA rules provided otherwise.

[12] The appeal agreement provides only for an appeal procedure according to the
AFSA rules – including rule 22.8. It does not provide ‘otherwise’, ie it does not
provide that interim awards which are not of final effect are appealable and the
appellants do not advance that contention. The real and only issue is whether the
arbitrator’s order dismissing the exception, would, if it had been made by the High
Court, have been regarded as an order having final effect, and thus appealable to the
SCA. This is precisely the test prescribed by rule 22.8 and (in the absence of
agreement ‘otherwise’) is applicable in the present case. On this matter it is settled
law that a High Court order dismissing an exception in the High Court is not
appealable to the SCA.1 It follows that the first issue, whether the arbitrator’s order
was appealable, must be decided in the first respondent’s favour. The arbitrator is
entitled to reconsider the interpretation issue.2

[13] I turn to the second issue, whether the appeal arbitrator had the power to hear
and finally decide the appealability point and thereby determine his own jurisdiction.

1Maize Board v Tiger Oats Ltd 2002 (5) SA 365 (SCA) at para 14.
2 Kett v Afro Adventures (Pty) Ltd 1997 (1) SA 62 (SCA) at 65G-H.

The appellate jurisdiction of the SCA is derived from s 168(3) of the Constitution3
read with the Supreme Court Act 59 of 1959.4 Because, as I have mentioned, the
dismissal of an exception (in the High Court) is not appealable under the Supreme
Court Act, the SCA will decline to exercise jurisdiction over an appeal of this nature.
The appeal will accordingly be struck from the roll.5 Similarly where an arbitration
agreement (incorporating the AFSA rules) does not confer on an appeal arbitrator the
power to entertain the dismissal of an exception he has no power to entertain the
appeal.  He may consider the appeal only provisionally, as the SCA would, for the
purposes of deciding the extent of his jurisdiction.

[14] Where the parties themselves disagree as to the powers conferred on an appeal
arbitrator, the appeal arbitrator cannot extend the area of jurisdiction over the very
matter which he is required to resolve. And if he does, he will act beyond his
mandate.6 The contention advanced by the appellants is that the appeal agreement
empowered the appeal arbitrator finally to determine his own jurisdiction.7 It is a far-
reaching contention implying that the agreement constituted an ouster of the court’s
jurisdiction. Such an agreement must be provided for specifically, and in the clearest
terms.

[15] It is clear that at the commencement of the arbitration appeal there was no
agreement on the ambit of the appeal arbitrator’s jurisdictional powers. All that was

3 Section 168(3) provides:  ‘The Supreme Court of Appeal may decide appeals in any matter. It is the highest court of
appeal except in constitutional matters, and may decide only –
(a)
appeals;
(b)
issues connected with appeals; and
(c)
any other matter that may be referred to it in circumstances defined by an Act of Parliament.’
4 Moch v Nedtravel (Pty) Ltd t/a American Express Travel Service 1996 (3) SA 1 (SCA) at 7D-G.
5 Kett v Afro Adventures (Pty) Ltd 1997 (1) SA 62 (SCA) at 65H-I.
6 Joubert (2 ed) The Law of South Africa vol 1 para 607; McKenzie v Basha 1951 (3) SA 783 (W) 788; Attorney-
General for Manitoba v Kelly [1922] 1 AC 268 (PC) at 276.
7 Amalgamated Clothing and Textile Workers Union of South Africa v Veldspun (Pty) Ltd 1994 (1) SA 162 (SCA) at
169E-F.

agreed, in the face of the first respondent’s jurisdictional objection, was that the
appeal arbitrator would deal with both the issue of appealability and the merits in a
single hearing. There is no suggestion in the correspondence that the appeal arbitrator
was given the power contended for. Indeed, even the appeal arbitrator recognised that
any finding he made as to his jurisdiction would be provisional. In these
circumstances, where there was no clear agreement conferring such power on the
appeal arbitrator, the appellants’ contention must founder. Thus by deciding the
jurisdictional question wrongly and then hearing and deciding the merits of the
appeal (and the cross-appeal) the appeal arbitrator exceeded his powers, and his
award fell to be set aside in terms of s 33(1) of the Arbitration Act 42 of 1965, and
the arbitration appeal fell to be declared of no force and effect. The court below
therefore arrived at the correct conclusion.

[16] I turn to the question of costs. Counsel for the first respondent submitted that it
was entitled to the costs of two counsel. I do not agree with this submission for the
reasons that follow. It is true, as the first respondent pointed out, that it objected to
the jurisdiction of the appeal arbitrator at the very outset. The grounds for the
objection were based on an interpretation of the appeal agreement as excluding
appeals against interlocutory orders only. But the first time that it raised the present
ground of objection based on AFSA rule 22.8 was when it filed its supplementary
heads of argument shortly before the hearing of the appeal. Indeed had the first
respondent pertinently raised the point in opposition to the appellants’ application for
leave this court would doubtlessly have refused leave and the costs of appeal would
have been saved. To the extent that the appellants also failed to appreciate the
appealability point it seems fair that it should shoulder the responsibility for costs,
although not to the extent of two counsel.8

[17] The following order is made:

8 Cf Kett v Afro Adventures (Pty) Ltd 1997 (1) SA 63 (SCA) at 65I-67F.

The appeal is dismissed with costs.

______________
A CACHALIA
JUDGE OF APPEAL
CONCUR:
HARMS ADP
FARLAM JA
JAFTA JA
PONNAN JA

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: 29 March 2007

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 (PTY) LTD & OTHERS
v
METTLE EQUITY GROUP (PTY) LTD & OTHERS

The Supreme Court of Appeal today dismissed, with costs, an appeal by
Gutsche Family Investments (Pty) Ltd; Formex Holdings (Pty) Ltd; The Trustees
For The Time Being Of The Lynch Trust (the appellants) against a finding by the
Johannesburg High Court reviewing and set aside an award by an appeal
arbitrator against Mettle Equity Group (Pty) Ltd. The appeal arbitrator had on
17 January 2005 directed Mettle Equity to pay the appellants the capital sum of
R 9 310 729,78 with interest after dismissing Mettle Equity’s objection to his
jurisdiction. The dispute arose from a sale agreement between the parties.

There were two issues that the SCA was concerned with. The first was whether
an arbitrator’s dismissal of the appellant’s exception to Mettle Equity’s pleadings
was appealable to an appeal arbitrator; secondly whether the appeal arbitrator
could finally determine this question in the context of an arbitration agreement.

The SCA decided that the rules under which the parties had conducted the
arbitration provided that the appealability of any interim award and the
jurisdictional power of an appeal arbitrator depend on whether the matter would
be appealable to the SCA. And because, so the SCA found, the dismissal of an
exception in the high court is thus not appealable to the SCA, the dismissal of
an exception by an arbitrator was likewise not appealable to an appeal
arbitrator. It accordingly found that by assuming jurisdiction over the appeal and
then proceeding to hear and decide the merits of the appeal the appeal
arbitrator had exceeded his powers.