THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Reportable
Case no: 476/06

In the matter between:

S A BREWERIES LIMITED

APPELLANT

and

SHOPRITE HOLDINGS LIMITED

RESPONDENT

________________________________________________________________

Coram:
SCOTT, LEWIS, VAN HEERDEN JJA, MALAN  et
KGOMO AJJA

Date of hearing:
16 AUGUST 2007
Date of delivery:   14  SEPTEMBER 2007

Summary:  Sale by appellant to respondent of large retail concern - validity of
determination by expert of accounting disputes

Citation: This judgment may be referred to as SA Breweries v Shoprite Holdings [2007]
SCA 103 (RSA)

SCOTT  JA/….

SCOTT JA:

[1] This appeal concerns the determination by an expert of accounting
disputes which were referred to him by agreement between the parties. The
respondent, to which I shall refer as ‘Shoprite’, applied in the Cape High Court for
an order, broadly stated, declaring the expert to have failed properly to determine
certain of the disputes referred to him and directing him, or alternatively an
internationally recognized firm of accountants selected by agreement, to
determine the disputes in question. The matter came before Davis J who granted
the order sought. The appellant, to which I shall refer as ‘SAB’, appeals with the
leave of the Court a quo.

[2] It is necessary to set out briefly the factual background to the dispute
between the parties and the events leading up to the institution of proceedings in
the court below.

[3] On 31 October 1997 SAB and Shoprite entered into a written agreement
in terms of which SAB sold to Shoprite the entire issued share capital in both OK
Bazaars (1929) Ltd and an associate company, Retail Holdings (Botswana) (Pty)
Ltd, and ceded to Shoprite all its claims and those of its subsidiaries against OK
Bazaars and the Botswana company. (The latter company plays no particular
role in the dispute and I shall refer to both companies simply as ‘OK’ or ‘the
company’.) The agreement made provision for the preparation of closing date
accounts (‘CDAs’) in respect of OK as at 31 October 1997. In terms of clause 4.1
the parties recorded that the balance sheet forming part of the CDAs would
reflect that the ‘ordinary shareholders’ funds’ of OK together with the ceded
claims (referred to in the agreement as the ‘sale claims’) would amount to the
sum of R540 million. Clause 4.2 provided that in the event of the ordinary
shareholders’ funds and the ceded claims being less than this amount, SAB
would be obliged to fund the shortfall by way of a cash loan which would form

part of the claims being acquired by Shoprite. The CDAs were accordingly to
form the basis for the determination of the amount, if any, which was to be
advanced by SAB. In terms of clause 4.6, any dispute between the parties in
relation to the determination of any amount for the purposes of clauses 4.1 and
4.2 (referred to above) and clauses 4.4 and 4.5.1 (the former is quoted in part
below) was to be referred for determination to accountants Arthur Anderson who
were to determine the dispute ‘acting as an expert and not as an arbitrator’ and
whose decision was to be final and binding on the parties ‘save for any manifest
error in calculation’. I interpose that the parties chose Arthur Anderson because
they were known to be the auditors of Pick ‘n Pay and to have particular
expertise in retail auditing.

[4] In terms of clause 8.1 of the agreement, the CDAs were to have been
prepared and certified by OK’s auditors. Clause 8.2 required them to consult with
Shoprite’s auditors. Any disagreement between them as to the inclusion or
exclusion of any amount or the principle or basis of calculation was to be referred
to Arthur Anderson who were similarly to determine the dispute acting as an
expert and not an arbitrator and whose decision was to be final and binding ‘save
for any manifest error in calculation’. In the event, the auditors of OK, KPMG,
declined to accept the appointment and the parties accordingly agreed that the
CDAs would be prepared by OK itself with the assistance of certain employees
representing SAB’s interests.

[5] The closing date was 31 October 1997 and the CDAs were to have been
completed by 31 January 1998. However, during the preparation of the CDAs
there were disagreements between the parties as to a range of adjustments and
provisions in the CDAs and the completion of the CDAs was delayed. As
previously indicated, the adjustments and provisions were relevant to determine
whether SAB was required to make payment to OK, by then owned by Shoprite,
and if so, in what amount. The parties agreed to pursue the preparation of the
draft CDAs as far as possible and then to identify the matters still in dispute for

referral to Arthur Anderson for the latter’s determination. Arthur Anderson
nominated a senior partner, Mr Edwin Oblowitz, for this purpose. The latter was
ultimately cited as the first respondent in the court below but elected to abide the
decision of the court. The parties in due course jointly submitted certain disputes
to Oblowitz (‘the expert’) for his determination. The referral was by way of a letter
signed by both parties. I shall refer to it as the ‘referral letter’.

[6] The referral letter outlined the areas of dispute and the specific issues
which had been identified by the parties for determination. It was itself the
product of extensive deliberation and negotiation between the parties and in
particular their employees who were experienced in the field of accountancy. The
items in dispute were listed in appendices three and four to the referral letter. The
letter also recorded the procedural rules which were to govern the determination.
Each party was to be permitted three sets of written submissions, an initial
submission, a response to the other party’s initial submission and a counter to
the other party’s response. There was to be no oral argument. The expert was
entitled to request such information or documents in the possession of the parties
as he might require and to consult with independent legal advisors should there
be matters involving aspects of law or interpretation of the agreement on which
he required advice. The expert’s determination was to include reasons for his
conclusions. As contemplated in the written agreement, the determination was
intended by the parties to be final.  In addition to the provisions in the agreement
to which reference has already been made, the referral letter recorded that
‘subject to the expert having acted reasonably, honestly and in good faith, neither
party will bring an action or proceedings to make any claim against the expert
relating to or arising from his duties hereunder’. Arthur Anderson acknowledged
its acceptance of the appointment in a letter dated 14 December 1998. The
acceptance was essentially on the terms and conditions set out in the referral
letter.

[7] Pursuant to the referral letter the parties delivered three sets of written
submissions to the expert which were supplemented from time to time with
information and documents which, at his request, were supplied by the parties.
The determination, consisting of the expert’s conclusions and reasons, was
signed on 28 February 2000 and received by the parties on 7 March 2000. On 17
April 2000 Shoprite applied to the High Court for an order compelling the expert
to furnish additional reasons for certain of his findings. On 10 July 2000 the
expert, without conceding that he was obliged to do so, provided the amplified
reasons and the application was not pursued. Significantly, Shoprite did not
invoke the so-called ‘call-back provision’ in relation to trade creditors. I shall
revert to this provision in due course.

[8] The expert’s determination was a disappointment for Shoprite. It had
claimed adjustments and provisions to the value of R280 million but those
accepted were limited to R57 million together with a contingent liability of R13
million. A dispute arose between the parties as to the interpretation and
implementation of essentially two aspects of the determination; the one related to
the provision to be raised in the CDAs for trade creditors and the other to an
adjustment in respect of the fixed assets of the company. Correspondence was
exchanged in which each party advanced its views. A meeting was also held in
January 2001 at Edenvale but no finality was reached. Shoprite contended, in
addition, that whatever the outcome of the on-going CDA disputes, there would
be a substantial shortfall under clause 4.2 of the agreement (referred to in para 3
above). In April 2001 it commenced arbitration proceedings against SAB in which
it claimed a declarator to the effect that it was entitled to interest under the
Prescribed Rate of Interest Act 55 of 1975 in respect of the unpaid shortfall. The
arbitrator dismissed the claim on the ground that Shoprite was not a creditor
within the meaning of the Act. Arbitration proceedings were subsequently
instituted in the name of Shoprite Checkers (Pty) Ltd (previously OK Bazaars) for
essentially the same relief. This claim was similarly dismissed; it was held that

the claimant was not a party to the agreement of sale and therefore was not
entitled to the relief it sought.

[9] In the meantime, on 23 August 2002, Shoprite launched the application
giving rise to the present appeal. It contended that in breach of his contractual
obligation to do so, the expert had failed properly to determine the disputes
between the parties in relation to trade creditors and fixed assets, and had failed
to produce a determination which was capable of implementation. It argued that
the proceedings were not precluded by the provisions of clauses 4.6 and 8.2 of
the agreement as to finality since the purported determinations made by the
expert were in truth no determinations at all and that the expert had acted
unreasonably.

[10] On 12 August 2005 Davis J granted an order at the instance of Shoprite
for the discovery of certain documents discovered by SAB in the second
arbitration as well as the transcript of the evidence of certain of SAB’s witnesses
in that arbitration. An order was also granted directing that ‘the matter’ be
referred for the hearing of oral evidence. In the event, three witnesses gave
evidence on behalf of Shoprite. SAB called no witnesses.

[11] Against this background I turn to the issue relating to trade creditors.
Clause 4.4 of the written agreement contains a formula for calculating the
provision to be made in the CDAs for trade creditors. The relevant part reads:

‘4.4.
For the purposes of the closing date accounts and the Botswana company closing date
accounts the following provisions shall be made and the amounts thereof lent by the
seller to the company to fund the company within three (3) days after finalization of such
closing date accounts, resulting therein that such amounts shall form part of the sale
claims being acquired by the purchaser in terms of this agreement:
4.4.1.
an amount equal to 80% of the unrecorded and/or unreconciled trade creditors of the
group and the Botswana company, calculated as follows:

(A minus B plus or minus C) x 80%

where:

A
=
the total of creditors statements rendered to the group and

the Botswana company

B
=
the amount owing to creditors according to the books of the

group and the Botswana company

C
=
the timing differences due to different cut off dates between

the creditors statements referred to in A and the books of

the group referred to in B

and following the procedures set out in 5.1.’

As indicated, the procedures that were to be followed are set out in clause 5.1. It
reads:

‘5.1.
The following procedures will be used by the company and the Botswana company to
determine the amount to be lent by the seller to fund the company in respect of the trade
creditors of the group:
5.1.1.
statements, effective 31 October 1997, will be obtained from all listed suppliers appearing
in the companies’ books of accounts and the total thereof shall be A in the formula in
4.4.1.
5.1.2.
said statements from suppliers will be reconciled to the amounts owing to creditors
according to the books of the company and the Botswana company (the latter being B in
the formula in 4.4.1). All differences to be listed and shall be represented by (A - B). All
records and supporting documents shall be kept of items relating to such differences;
5.1.3.
timing differences due to different cut-off dates (indicated by C in the formula in 4.4.1) will
be excluded from the lists of differences.’

It is important to appreciate that ‘timing differences’ arise when credits or debits
are processed in the company’s books and those of a supplier (creditor) at
different times. They do not reflect disputed items. An example would be an
undisputed claim raised by the company for a short delivery or goods returned
not yet processed by the supplier.

[12] The dispute that arose between the parties concerned the nature of the
reconciliation exercise that had to be carried out. Shoprite contended that a
limited exercise was required. It pointed to the fact that detailed reconciliations

had not been prepared in the past and argued that given the number of suppliers
and the vast volume of transactions involved, a full and detailed reconciliation
was impractical and not what had been intended, particularly having regard to the
time limit imposed in clause 8.1 of the agreement. It contended that in these
circumstances all that was required was that statements be obtained from
creditors of balances outstanding and that from these balances be deducted the
amounts owing to creditors according to the books of the company. In Shoprite’s
view there was no need to obtain from creditors detailed open item statements
reflecting the composition of the amount of each statement. It stressed that
creditors had in the past been discouraged from sending month-end statements
to the company. As far as timing differences were concerned it argued that all
that was necessary was to identify timing differences in the 30-day period on
either side of the closing date and to exclude the amounts so identified from the
calculation.

[13] SAB, on the other hand, took the view that what was required by the
agreement was a full and detailed reconciliation in which all differences between
supplier’s statements and the amounts shown on the company’s books of
account were properly identified and distinguished from timing differences. It
argued that the 30-day cut-off period in respect of timing differences contended
for by Shoprite would fail to exclude from the calculation timing differences which
took longer than 30 days to be processed. SAB’s attitude was that a superficial
reconciliation and the failure properly to identify timing differences, in particular
the timing differences in respect of claims raised by the company, would operate
very much to its disadvantage and would result in it having to pay considerably
more than was due. It was also aware that in many instances the suppliers would
be unable to justify their claims, yet SAB was being called upon to pay 80 per
cent of these claims to Shoprite.

[14] The issues in relation to trade creditors referred to the expert were
formulated by the parties in the referral letter as follows:

‘You are instructed to determine:
1.1
whether the exercise performed by the Company constitutes a reconciliation as is
required by clause 5.1.2 of the Agreement;
1.2
whether the Company has complied with its obligation under 5.1.1 of the Agreement to
obtain statements from all its suppliers;
1.3
whether the Company has complied with its obligation under 5.1.2 to list all differences
and to keep records and supporting documentation for all items relating to such
differences;
1.4
what adjustments constitute “timing differences” for the purposes of determining “the
unrecorded or unreconciled trade creditors of the Group” as required under clause 4.4.1
of the Agreement;
-
it being agreed that the Expert shall as part of the exercise undertaken in terms
of 1.1 to 1.4 above be called upon to determine what the nature of the calculation
should be to determine the “unrecorded and/or unreconciled trade creditors” as
contemplated by clause 4.4.1;
and
1.5
what further steps, if any, need to be taken by the Company to prepare a reconciliation as
required by the Agreement.’

The parties clearly anticipated that the answers given by the expert might be
insufficient to resolve their differences regarding the nature and amount of
adjustments to be made in respect of trade creditors. This much is apparent from
the so-called call-back provision which followed on the questions quoted above.
It reads:

‘Dependent on the outcome of your determination, there are likely to be other areas of dispute
regarding the nature and amount of adjustments to Trade Creditors.  The following will then
apply:
i)
Any party who wishes to refer any further area of dispute to you, must identify such
area of dispute by written notification to you (copied to the other party) within 10 (ten)
days of the outcome of your determination having been communicated to the parties.
ii)
In such event you will be required to convene a meeting within ten (10) days of
receiving such written notification under sub-paragraph (i), at which meeting the
parties will be required, in conjunction with you, to agree on the further procedures
that are to be followed and time limits to be adhered to by the parties to enable you to

determine the further areas of dispute. Failing such agreement the Expert shall
determine such further procedures and time limits in his sole discretion after
consultation with the parties and consideration of their requirements.’

[15] As previously indicated, each party filed three sets of submissions in
which they advanced the contentions briefly outlined above. Shoprite sought to
justify its cut-off period of 30 days before and after the closing date on the basis
that in the context of normal accounting operations transactions not processed by
both parties within a period of 30 days before and after the normal accounting
month-end, are ‘in all probability’ in dispute. I interpose that Mr Griffin, Shoprite’s
group administration manager, subsequently conceded in evidence that the
before and after 30-day cut-off period would ‘only pick up a portion’ of the timing
differences. He confirmed that credit notes in response to claims raised by the
company were in several instances issued some three months to two and a half
years later. With regard to identifying timing differences arising from claims
raised by the company which had not yet been processed by suppliers, Shoprite
contended that the massive volume of transactions  involved and the fact that
suppliers’ statements were not available for November 1997 ‘rendered it
practically impossible to trace all claims to credit notes on suppliers’ November
statements’.  Accordingly, a sample list of suppliers’ claims was selected to be
tested and the percentage of claims processed by suppliers was extrapolated to
the total claim made by the company. Significantly, Shoprite in its submissions
advanced no suggestions in the alternative as to what could be done to identify
timing differences in the event of the expert rejecting its cut-off period of 30 days
before and after the closing date. SAB similarly advanced no alternative in the
event of its claim for a full reconciliation being rejected.

[16] In response to the first question (‘whether the exercise performed by the
company constitutes a reconciliation as is required by clause 5.1.2 of the
Agreement’), the expert noted the absence of a definition of ‘reconciliation’ in the
agreement and referred to the practical problems associated with carrying out a

comprehensive reconciliation as outlined by Shoprite in its submissions. He then
proceeded to answer the first question as follows:

‘The exercise performed by the Company adequately identifies the totals of “A” and “B” as
defined above but does not deal adequately with “C” as defined above, (e.g. claims on suppliers
were sampled and not comprehensively determined; only transactions one month either side of
cut-off date were considered).
I determine that the exercise performed by the Company does not constitute a reconciliation as
required by clause 5.1.2 of the Agreement.’

[17] Turning to the second question (whether the company has complied with
its obligations under clause 5.1.1 of the Agreement to obtain statements from all
its suppliers), the expert answered as follows:

‘Shoprite has represented that the Company has obtained statements from all listed suppliers as
required by clause 5.1.1 of the Agreement and that the procedures followed were as detailed
below:

“. . .  to ensure that all listed creditors were accounted for, an extract of the Supplier Database
(Cost Book) of the company was obtained;

All creditors were telephonically contacted and requested to submit their statements as at 31
October 1997 to the company. In instances where the statements rendered did not account for
the period up to 31 October 1997, an interim statement was requested for the remaining period
up to 31 October, 1997;”

SAB did not challenge this representation from Shoprite or query the abovementioned
procedures, but asserted that the statements did not contain information in sufficient detail as to
enable the determination of the timing differences, and that additional information and supporting
documentation were required.

I determine that the Company has complied with its obligations under 5.1.1 of the Agreement to
obtain statements from all its suppliers.’

[18] The third question (whether the company had complied with its obligation
under 5.1.2 to list all differences and to keep records and supporting
documentation for all items relating to such differences) was dealt with by the
expert in two parts. As to the obligation to list all differences, ie as represented by
A-B in the formula contained in 4.4.1 of the Agreement, the expert recorded that:

‘Shoprite has represented that the Company has listed all differences represented by (A-B). SAB
has acknowledged that this listing was prepared but asserts that it is defective in that the listing
does not contain a detailed analysis of the individual differences.’

He concluded:

‘I find that the Company has complied with the requirement of the first part of clause 5.1.2 to list
all differences represented by (A-B).’

As far as the second part of the question is concerned, the expert found that the
company had not complied with the requirement to keep ‘all records and
supporting documents relating to such differences’. However, the claim in respect
of this aspect of the determination was dropped in the light of the evidence
adduced at the hearing.

[19] With regard to the fourth question (‘what adjustments constitute “timing
differences” for the purposes of determining “the unrecorded or unreconciled
trade creditors of the Group” as required under clause 4.4.1 of the Agreement’),
the expert determined:

‘Shoprite has represented that timing differences would include, inter alia, the following:
•
invoices from creditors in respect of goods not yet received by the Company;
•
goods received by the Company for which invoices have not yet been processed in its
books;
•
payments made by the Company not yet accounted for by creditors;
•
post dated cheques not recorded in the Creditors’ [Ledger] System (“CLS”) which have
been accounted for by creditors as payments;

•
claims raised by the Company which have not yet been processed by creditors.
SAB’s interpretation of “timing differences” (i.e. undisputed entries which have been processed by
either the supplier or the Company, but not in the relevant period), would include the
abovementioned adjustments as timing differences.

The following additional adjustments should also be taken into account as timing differences:
•
credit notes issued by creditors not yet accounted for by the Company.
•
payments (other than post dated cheques) recorded by creditors but not yet processed
by the Company.

I determine that all the abovementioned adjustments constitute timing differences for purposes of
clause 4.4.1 of the Agreement. In determining such timing differences, differences arising from
transactions effected in the periods more than 30 days before and after closing date should also
be examined.’

[20] The expert then addressed himself to the following further questions:

‘. . . as part of the exercise undertaken in terms of 1.1 to 1.4 above [the expert shall] be called
upon to determine what the nature of the calculation should be to determine the “unrecorded
and/or unreconciled trade creditors” as contemplated by clause 4.4.1;
and
1.5
what further steps, if any, need to be taken by the Company to prepare a reconciliation as
required by the Agreement.’

It is necessary to quote his answer in full -

‘My determinations in respect of the aforegoing are set out in the subparagraphs numbered 1,2
and 3 below:
1.
The CLS [Creditors’ Ledger System] download listing should be used for comparison
with the creditors’ statement balances for purposes of identifying (A-B).
2.
A detailed calculation should be made of all timing differences (of the types identified
above under 1.4) as at October 31, 1997. The following specific matters should be
taken into account when the timing differences are determined:
•
the statement received from each creditor should be examined to ascertain
whether or not any post-dated cheques have been taken into account. Where

these have been taken into account, a timing difference should be recorded as
the cheques were not taken into account in the CLS balances.
•
the Company should determine comprehensively the value of claims for credit
raised which have not, to date, been contested by suppliers - the sampling and
extrapolation exercise previously performed by the Company is not considered to
be appropriate.
•
pre-arranged advertising rebates claimed by the Company but not yet recognised
on creditors’ statements should also be recognised as timing differences.
•
the Company should examine transactions which are dated more than 30 days
before/after closing date to identify other potential relevant timing differences.
•
previous workings should be reviewed and any potential errors and/or
deficiencies should be corrected and adjusted - the following specific matters do
not constitute a comprehensive listing and further enquiries or investigation by
the parties may reveal additional items of this nature:
Shoprite represented that the timing differences had been adjusted for six payment-
related differences totaling R2,702m identified by Price Waterhouse. It remains
unclear whether the amount of R493 773 in respect of Tongaat Hulett has been
appropriately treated as a “cheque” difference on the reconciliation Schedule SC1.20
to Shoprite’s third submission. In addition, another difference of R133 833 for Flame
Electrical has not, as acknowledged by Shoprite, been included in the timing
differences. In respect of the R677 996 timing differences for manual advertising
rebates also identified by Price Waterhouse, it is unclear from an examination of the
abovementioned Schedule SC1.20 whether they have been included.

3.  The above process should generate a comprehensive total for timing differences “C”, which
when added to - or deducted from - the previously determined (A-B), should yield a balance, 80%
of which will constitute the “unrecorded and/or unreconciled trade creditors” provision which the
Agreement requires to be made in the CDA.’

[21] From the aforegoing, it is clear that the expert was fully aware of the
absence of records and supporting documents relating to past transactions and
that detailed reconciliations had not been prepared by the company in the past.
Nonetheless, he unequivocally rejected Shoprite’s submission that only timing
differences arising from transactions effected within the period of 30 days before
and after the closing date need be examined. Similarly, he rejected the sampling
and extrapolation exercise performed by the company and ruled that the

company should determine comprehensively the value of claims raised by the
company which had not, by the date of his determination, been contested by
suppliers. By the same token, it is clear from the answers to questions one, two
and three that he rejected SAB’s contention that there be a full and detailed
reconciliation of all differences. The solution, therefore, lay between the two
extremes adopted respectively by each party. Common sense would indicate that
what was intended for the purpose of identifying timing differences was that
transactions before and after the closing date were to be investigated to the
extent that it was reasonable and practical to do so. Significantly, a solution along
these lines was proposed by Shoprite following the determination. However, in
the correspondence between the parties that followed, SAB adopted a stance
which senior counsel for SAB found himself obliged to concede was opportunistic
and which I would characterize as obstructive. In the result no finality was
reached.

[22] The issue in the present case, however, is not whether one or other
interpretation of the determination is the correct one but whether the
determination is one which is valid in law. Counsel on both sides were agreed
that in general the requirements for a valid arbitral award are equally applicable
to an expert determination and we were referred to a number of authorities in
which these requirements are set out. (See eg David Butler and Eyvind Finsen
Arbitration in South Africa Law and Practice (1993) p 260-264; H S McKenzie
The Law of Building and Engineering Contracts and Arbitration 5 ed (1994)
p 191-196; Sir Michael J Mustill and Stewart C Boyd Commercial Arbitration -
The Law and Practice of Commercial Arbitration in England 2 ed (1989) p 284-
388 and David St John Sutton and Judith Gill Russell on Arbitration 22 ed (2003)
p 254-260.) In summary, what is required is that all issues submitted must be
resolved in a manner that achieves finality and certainty. The award or
determination may therefore not reserve a decision on an issue before the
arbitrator or expert for another to resolve. It must also be capable of
implementation. On the other hand, what must be determined are the matters

submitted and no more. Depending on the questions, therefore, the
determination may not necessarily result in a final resolution of a dispute
between the parties. Generally, a court will be slow to find non-compliance with
the substantive requirements and an award or determination will ‘be construed
liberally and in accordance with the dictates of commonsense’ (Mustill & Boyd,
supra, at 570). This, I think, must be particularly so when the questions for
determination are themselves lacking in precision. A question as to what steps
are to be taken to achieve a particular result is perhaps a good example. A court
will, therefore, as far as possible construe an award or determination so that it is
valid rather than invalid. It will not be astute to look for defects. As observed by
Bingham J in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 275
Estates Gazette 1134 (Queen’s Bench Division (Commercial Court)) in the
context of an arbitration award:

‘. . . as a matter of general approach, the Courts strive to uphold arbitration awards. They do not
approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults
in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it.
The approach is to read an arbitration award in a reasonable and commercial way expecting, as
is usually the case, that there will be no substantial fault that can be found with it.’

Where uncertainty in meaning does emerge regard may be had, as in the case of
the interpretation of contracts, to the extrinsic circumstances surrounding or
leading up to the award or determination. (Cf Firestone South Africa (Pty) Ltd v
Gentiruco AG 1977 (4) SA 298 (A) at 304.)

[23] Counsel for Shoprite submitted that the expert’s determination on the
question of trade creditors did not meet the requirements of a valid
determination. They pointed to the fact that the expert was fully aware that the
majority of suppliers’ statements received had ‘carried forward’ balances, that the
company had not maintained proper records and that a comprehensive and
detailed reconciliation of all differences was impossible in the circumstances,
particularly having regard to the time deadline imposed by the agreement. Once

the 30-day cut-off proposal was rejected, the expert was obliged, so it was
argued, to state for what exact period before or after the closing date
transactions had to be examined to identify timing differences and how such
timing differences were to be identified, in other words, how the exercise was to
be performed where the data necessary for the exercise was not available. It was
argued further that there was an inherent inconsistency between, on the one
hand, the expert’s acceptance that the company had complied with its obligation
to obtain statements from suppliers and list all differences and, on the other
hand, the rejection of a 30-day cut-off period; and that although the expert
purported to lay down the steps that had to be taken in order to determine the
quantum of timing differences, ie the letter ‘C’ in the formula, he had in fact  failed
to do so and the dispute between the parties remained unresolved.

[24] Counsel for SAB, on the other hand, emphasized that the determination
was made by an expert in the field of retail auditing and was directed at
experienced accountants well versed in the retail industry. Accordingly, so it was
argued, the determination had to be construed according to the understanding of
such people. Counsel submitted that once the expert had rejected both the
expedient of a 30-day cut-off period and the requirement of a comprehensive
reconciliation, common sense dictated that what was required was an exercise to
identify timing differences to the extent that it was reasonable to do so on the
records and information available; that the actual mechanics of such an exercise
was not something that ought to present a problem to experienced accountants.
In this regard counsel relied heavily on the evidence of Mr Marius Bosman,
Shoprite’s group financial manager, who testified at the oral hearing. In particular
counsel referred to the following passages in the cross-examination of Bosman:

‘Counsel: He [the expert] said you must go back and forward more than 30 days.
Bosman: Yes, the expert said that.
Counsel: Now when the expert said that, did you believe it was now impossible for you to carry
out his determination?

Bosman: To my mind what the expert meant or how we understood the determination of the
expert was to do what was possible and what was practical.’

The evidence continued:

‘Counsel: You looked at the expert determination you said, and you said look, it’s got an implied
limitation. You say you’ll do it if it’s possible. Is that right?
Bosman: Yes, do it with the documentation that is available.
Counsel: You would like to say, the qualification is do it with what’s available, the documentation
that’s available.
Bosman: Yes, that’s correct.
Counsel: So you said to yourself well, I can carry this out if I imply the qualification that I must do
it with such documents that I have.
Bosman: That is correct.’

A further exchange reads:

‘Counsel: And therefore if they brought a Court action to get you to do what they say the expert
determination says, you would defeat the Court action by showing the Court that the expert must
have meant exactly what you say he meant.
Bosman: Yes.’

In the light of this evidence counsel for SAB argued that even if one were to
ignore the call-back provision (to which I shall turn next), Shoprite could not
succeed on the basis on which it had proceeded in the present case, ie that the
determination in respect of trade creditors was invalid. Whether it would have any
other remedies in law, said counsel, was not a question before the court a quo
and hence not relevant to the appeal.

[25] The question that arises is whether it is in any event open to Shoprite to
rely on an alleged breach of contract on the part of the expert for failing to
determine properly the dispute referred to him and indeed to impugn the
determination for lack of certainty notwithstanding its failure to invoke the call-
back provision (quoted in para 14 above). It will be recalled that the clause

provided for a mechanism for resolving ‘other areas of dispute regarding the
nature and amount of adjustments to trade creditors’ that were likely to arise
‘dependent on the outcome of [the] determination’. Any party who wished to refer
any ‘further area of dispute’ to the expert was entitled to identify the area of
dispute by written notice to the expert within a period of 10 days of the
determination. In the event of either party doing so, the expert was required to
convene a meeting within 10 days at which the parties would be required to
agree on the procedure to be adopted to enable the expert to determine the
further areas of dispute and in the absence of agreement the necessary
procedures were to be decided by the expert. Counsel for SAB emphasized that
Shoprite in its submissions to the expert had advanced no alternative to the 30-
day cut-off period it proposed to identify timing differences and yet its complaint
was that the expert, after rejecting this proposal, had failed to determine precisely
how far back and how far forward the company had to go to identify timing
differences. Counsel argued that if the implied limitation accepted by Bosman
was unacceptable to Shoprite or if it felt that the limitation was unclear, its
remedy was to invoke the call-back provision. Having failed to do so, said
counsel, Shoprite could not now seek to impugn the determination for lack of
certainty.

[26] The court a quo rejected SAB’s contentions on two grounds. As to the
first, Davis J held that the call-back provision ‘was intended to deal with
additional areas of dispute, that is other than those which flowed from the
determination itself’. He held that the disputes as to how far beyond the 30 day
period OK was to go and how the  timing differences were to be determined were
disputes that flowed from the determination itself and were therefore not ‘further
areas of dispute’. I cannot agree. The learned judge’s conclusion, in my view, is
inconsistent with the plain wording of the call-back provision. It refers to ‘other’ or
‘further’ areas of dispute which are ‘likely’ to arise ‘dependent on the outcome of
your [the expert’s] determination’ and  which are disputes ‘regarding the nature
and amount of adjustments to trade creditors’. As counsel for SAB point out, if

the interpretation of the learned judge was correct and the call-back provision
was intended to deal only with additional areas of dispute which did not flow from
the determination itself, it is difficult to imagine how these could ever be
‘dependent on the outcome of the determination’. The disputes in issue clearly
related to ‘the nature and amount of the adjustments to trade creditors’ and the
questions giving rise to those disputes were not questions specifically asked in
the referral letter but arose from the determination. The very object of the call-
back provision was to enable the parties to have such ‘further disputes’
determined by the expert.

[27] The second ground on which the court a quo rejected SAB’s reliance on
the call-back provision was that the provision would not be applicable if the
expert’s determination failed to comply with the substantive requirements of law
(as the learned judge found to be the case). In other words, so counsel for
Shoprite contended, if the determination was invalid because it failed properly to
answer the questions put to the expert, then in law there was no determination at
all and accordingly no primary jurisdictional fact to trigger the call-back provision.

[28]  When formulating the questions to be put to the expert, the parties clearly
anticipated that the answers might not resolve the dispute relating to trade
creditors and that there were ‘likely to  be other areas of dispute’ that required
determination arising from the answers to the five questions posed. Significantly,
the provision for follow-up questions applied only to the determination in relation
to the dispute concerning trade creditors and not to any of the many other
disputed items raised in the referral letter. Shoprite’s objection to the
determination was ultimately that it lacked certainty and finality because it
provided no clear answer to a question that was inherent in those that were
formulated in the referral letter, namely precisely how the letter ‘C’ in the formula
in clause 4.4.1 of the agreement was to be determined in the event of the 30-day
cut-off proposal not being accepted by the expert. If, however, the determination
had to provide answers to all possible areas of dispute ‘regarding the nature and

amount of adjustments to be made in respect of trade creditors’ before the call-
back provision could be invoked, that provision would serve no purpose. But, as I
have indicated, the parties clearly anticipated that further areas of dispute
regarding the issue of trade creditors could arise from the determination. In these
circumstances, the construction placed on the call-back provision by the court a
quo strikes me as over-technical and one that could not have been what the
parties intended. It follows that in the absence of the expert being required to
answer follow-up questions as envisaged in the call-back provision he cannot, in
my view, be held to have failed to fulfill his mandate to determine properly the
dispute referred to him; nor, I think, can his determination be impugned on the
ground of such a failure.

[29] Shoprite also advanced as a reason for not invoking the call-back
provision that SAB would have objected to such a referral and this would have
frustrated the process. But it is clear from the terms of the provision that either
party was entitled to invoke the provision without the agreement of the other and
that SAB could not have prevented the process had it been correctly and
timeously invoked. There is accordingly no substance in this argument. It follows
that the appeal on the issue of trade creditors must succeed.

[30] I turn now to the expert’s determination in respect of the fixed assets of
the company. The fixed assets register (‘FAR’) was a register containing the
details of fixed assets of OK and was kept in compliance with the requirements of
the Companies Act. The value of the assets should in principle be reflected in the
fixed assets account of the company’s general ledger (‘GL’) and the value of
fixed assets reflected in the FAR and the GL should be the same. The GL in part
determines the CDAs and, as explained above, could therefore have an effect on
any shortfall payable by SAB in terms of clause 4.2 of the agreement. At the time
of the preparation of the draft CDAs, the value of assets reflected in the GL
exceeded that reflected in the FAR by some R8.8 million. Shoprite claimed that
there should be a write-off of assets shown in the GL in this amount to reflect the

assets which it claimed were missing from the company at the closing date. SAB
contended that the FAR was unreliable and that the difference between the FAR
and the GL did not warrant a downward adjustment of the GL.

[31] In an attempt to verify the reliability of the FAR, the company selected 26
stores (out of a large number of retail outlets) and conducted an investigation into
the reliability of the fixed asset register of each. Errors were discovered and it
was found that in some cases assets had been moved from one store to another
resulting in discrepancies in their respective fixed asset registers. The
discrepancies were consolidated in order to derive an overall figure for the 26
stores and the result was then extrapolated across the entire company. SAB did
not accept the result of this sampling exercise.

[32] The adjustment to the draft CDA proposed by Shoprite, and disputed by
SAB, was recorded as item 12 of appendix 3 to the referral letter. The item reads:

‘Write off assets not physically identified on FAR on sample basis     R8,8m.’

The question put to the expert to resolve the dispute was formulated in the
referral letter as follows:

‘You are instructed to determine:
4.1
whether the adjustments reflected under items 11 to 14 on Appendix 3, which affect the
values at which fixtures and fittings and computer equipment are stated in the draft Closing Date
Accounts, are in accordance with the Agreement.

If not, what adjustments should properly be made and what further steps, if any, does the
Company have to take?’

[33] In its submissions to the expert Shoprite contended that the FAR was
reliable. Its claim for an adjustment of R8.8 million was in fact dependent on the
reliability of the FAR. In support of this contention it relied on both the sampling
exercise referred to above and a warranty in the agreement of sale as to the

reliability of the FAR. However, in its second submission to the expert, Shoprite
referred to, and quoted from, a letter dated 24 April 1997 addressed by KPMG
(OK’s auditors) to the audit committee of the company in support of the
proposition that no reliance could be placed on the unqualified nature of the audit
report on the March 1997 accounts of the company. The relevant passage in
Shoprite’s submission to the expert reads as follows:

‘4.16.1   The expert is referred to paragraph 6 of the letter by KPMG to the Audit committee of the
Company annexed hereto marked Schedule “SC4.3” which records:

“The fixed assets records of the group are inadequate at this stage to properly
support the balance reflected in the General Ledger. In addition fixed assets with a net
book value of R5,5 million relating to closed stores have not yet been written off. We are
however satisfied that the balance is conservatively stated taking into account the
significant adjustments in prior years, but have included the R5,5 million in our schedule
of audit differences. Management are aware of the problem and will address it when
circumstances permit.”

4.16.2
It is submitted that the unqualified audit report to the March Accounts by KPMG clearly
relied upon the fact that management were made aware of the problem and had
undertaken to address it by:
•
the formation of a fixed asset project committee tasked with the setting up of an
accurate fixed asset register with meaningful descriptions and values to enable
adequate physical verification to take place;
•
the move of the fixed assets register into the Millenium fixed assets computer
software package.
4.16.3   To Shoprite’s knowledge the Company’s erstwhile management had not complied with
such undertakings as at the Closing Date. In the light thereof no reliance can be placed on the
unqualified nature of the said audit report. In support hereof Shoprite annexes hereto a
memorandum of matters arising from the audit for the year ended 31 March 1997 by KPMG,
marked schedule “SC4.4”.’

The above notwithstanding, Shoprite persisted in the contention that the FAR
should be accepted as being more reliable than the GL and that the value of

fixed assets reflected in the GL should be reduced by R8.8 million so as to bring
it into line with the FAR.

[34] The expert answered as follows:

‘As indicated above, SAB represented that the FAR is inaccurate. Furthermore, both parties
acknowledge the processing of a large write-off in 1995 which was reflected in the audited
financial statements for the financial year in which such write-off was made. It is impractical for
me to determine whether or not the R8,8m should be adjusted for in the CDA.

I determine that adjustment, if any, should be made in terms of Item 12 in respect of specific
assets which have been acquired (or scrapped) in the financial years following that in which the
R87m write-off had been made, and that steps be taken by the parties to establish this.’

(It is necessary to explain that the words ‘as indicated above’ is a reference to
the KPMG letter dated 24 April 1997 to which the expert referred in some detail
when dealing with item 11 of appendix 3 which is not in issue.)

[35] The expert’s amplified reasons for his determination read:

‘I concluded that it was impractical for me to determine whether or not the CDA should be
adjusted by the claimed R8,8m in respect of assets not physically identified but still reflected in
the fixed asset register (“FAR”). My reasons were stated in the original Determination, namely
that the FAR was accepted by both parties as inaccurate and that a large write-off of R87m had
already been processed in the general ledger in 1995 without the corresponding write-offs being
specifically recorded at the time in the FAR. While sympathetic to the submission by Shoprite that
there might be assets included in the general ledger incapable of substantiation, I was concerned
that the sampling exercise performed in order to estimate the R8.8m proposed adjustment had
been based on the information contained in the FAR,  a register which was accepted by both
parties as being deficient. The possibility exists that amounts included in the proposed R8,8m
adjustment may already have been covered by the R87m write-off in 1995, and I therefore
determined that the CDA should be adjusted only for those “missing” assets which could be
clearly identified as not having been written off in the R87m (namely those “missing” assets
acquired after the write-off date or those assets acquired before that date which could be shown
to have been scrapped after that date without corresponding adjustment in the general ledger). In

other words, my Determination accepted the principle that the “missing” assets be adjusted for,
but aimed to ensure that there was no “double-counting” in respect of the quantum of the write-off
proposed in applying the principle.

I considered Shoprite’s submission based on the warranty by SAB that the Company’s books and
records had been properly maintained. However, I was required by the terms of my engagement
to make determinations in respect of certain specific adjustments proposed in respect of fixed
assets. The fact that the FAR was not properly maintained did not, in my opinion, entitle Shoprite
to claim as an adjustment an amount not otherwise capable of substantiation. In my deliberations
on fixed assets, I examined the submissions of the parties and the evidence presented in order to
determine whether or not the proposed adjustment had been adequately substantiated. I
concluded that it had not.’

[36] It will be observed that there were essentially three questions put to the
expert in respect of the adjustment reflected in item 12 of appendix 3. They were:
first, whether the adjustment was in accordance with the agreement, second, if
not, what adjustments were to be made and, third, what steps, if any, was the
company to take. The expert clearly rejected the contention that there should be
an adjustment in the amount of the difference between the GL and the FAR. The
answer to the first question was therefore unequivocally ‘no’. The answer to the
second question was similarly unequivocal. The adjustments, if any, said the
expert, were those in respect of specific assets which were acquired or were
scrapped in the financial years following 1995, being the year in which the R87
million write-off was made. The answer to the third question put to the expert was
that steps were to be taken ‘by the parties’ to establish (ie identify) such assets
as had been acquired or scrapped during the period previously referred to.
Counsel for Shoprite argued that it was this answer that rendered the
determination uncertain and incapable of implementation. However, before
dealing with counsels’ submission on this issue it is necessary to consider briefly
two subsidiary criticisms levelled at the determination.

[37] It was argued that the expert erred in finding that the FAR ‘was accepted
by both parties as inaccurate’; it was also argued that the determination

contained no express or implied finding that the FAR was unreliable. The point
that was made was that while this was not an appeal from the determination, the
‘error’ gives ‘some insight into the question whether the determination is certain
or not’. I cannot agree. The observation that both parties accepted the inaccuracy
of the FAR was clearly based on Shoprite’s reliance on the KPMG letter to which
the expert referred when dealing with item 11 of appendix 3. In any event, the
implication that the expert found the FAR to be unreliable is readily apparent.
This much is clear from his rejection of the sampling exercise and the concern he
expressed that amounts included in the proposed R8.8 million adjustment may
already have been covered by the R87 million write-off in 1995.

[38] A further criticism levelled at the determination was the statement that it
was ‘impractical’ for him to determine whether or not the R8.8 million ‘should be
adjusted for in the CDA’. The suggestion was that the expert was declining to
determine whether the adjustment referred to in item 12 was properly made. I do
not think this is what the expert intended to convey. In my view, all that he was
saying was that the adjustment could not be made on the basis presented to him
and that any adjustment would have to be made with reference to specific assets
that had been acquired or scrapped. I should add that various other criticisms
were levelled at the determination but as these, in the main, concerned the
correctness or otherwise of the expert’s findings on fact, it is unnecessary to deal
with them.

[39] I return then to the answer given to the third question. Counsel for
Shoprite referred in the first place to the words ‘the parties’ and argued that this
implied that the parties had to agree on a procedure to identify the assets in
question. In support of such an implication counsel referred to correspondence in
which this had been conceded on behalf of SAB (although the concession was
later withdrawn) and argued that as there was no common ground between the
parties on  the point of departure for the exercise, the answer left the dispute
unresolved. In my view, the argument sets too much store by the use of the word

‘the parties’. The question put to the expert was what steps, if any, were to be
taken by ‘the company’. The reason for the reference to ‘the company’ was that
the company, by then owned and controlled by Shoprite, held all the relevant
material. SAB on the other hand, held none of the records and was not in a
position to assist in pursuing any steps which the expert may have proposed.
Following the determination, SAB was for the same reason unable to assist with
the steps directed by the expert, namely to identify missing assets which had
been acquired or scrapped subsequent to 1995. This much was conceded by Mr
Douglas King who is the head office manager of Shoprite and who testified on its
behalf at the oral hearing. I accordingly agree with counsel for SAB that the
expert did not refer to ‘the parties’ in contradistinction to ‘the company’, but in
contradistinction to himself. While the use of the words ‘the parties’ may have
been less than precise, they do not justify the inference that the parties were
required to agree upon a procedure for identifying missing assets.

[40] The main thrust of Shoprite’s criticism of the determination, however, was
that the expert failed to answer the third question, ie  he failed to provide
guidance as to how assets were to be identified or as counsel put it, he failed to
provide a ‘roadmap’ and ‘left it to the parties to resolve the dispute themselves’.
In support of this submission much was made of subsequent correspondence to
demonstrate the stance taken by SAB in the past and how it differed from that
adopted by SAB in the present litigation. But it is necessary to emphasize that
the question in issue is not what SAB might have said or done in the past, or
which of two possible constructions of the determination may be the correct one,
but whether as a matter of law the determination is certain and final and capable
of implementation.

[41] As pointed out above, a court will be slow to find non-compliance with the
substantive requirements of a valid determination and will construe a
determination liberally and in accordance with the dictates of common sense. It
will not examine the determination with a meticulous eye in an endeavour to find

some fault. The expert in the present case was not asked to specify a particular
procedure that had to be followed (assuming it was possible for him to have done
so) but to give an answer to the less precise question of what steps had to be
taken. The answer he gave was that the steps to be taken were those necessary
to identify assets that were missing and had been either acquired or scrapped
after the write-off in 1995. The answer was not addressed to lay persons or
lawyers but to experienced accountants in the employ of the company and
Shoprite. They were told exactly what they had to look for and it was made clear
that in doing so reliance was not to be placed on the FAR. In these
circumstances, I cannot agree that the determination was rendered invalid for
want of directions as to how to go about tracing the missing assets.

[42] The fact that the determination made it necessary to identify specific
assets rather than rely on the FAR made the task undoubtedly more onerous.
Shoprite’s accountants hardly needed the expert to tell them what they had to do.
Shoprite’s real complaint was the onerous nature of the exercise required by the
determination rather than its uncertainty. As Bosman conceded in evidence, the
acquisition and scrapping of assets would normally be recorded in documents.
Typically, written authority would be required for the acquisition of an asset and
the greater the amount involved the more senior would be the person authorizing
the expenditure. The same would apply to the scrapping of an asset. The
exercise required by the determination involved the laborious task of tracing the
documents evidencing the acquisition and scrapping of specific assets
subsequent to 1995. This was hardly what Shoprite would have wanted from the
determination. But that is what the determination required and that, in my view,
was both certain and capable of being carried out. It follows that the appeal
against the court a quo’s finding on the issue of the company’s fixed assets must
likewise succeed.

[43] The appeal is upheld with costs, including the costs occasioned by the
employment of two counsel. The order of the court a quo is set aside and the
following is substituted in its place:

‘The application is dismissed with costs, including the costs occasioned by
the employment of two counsel.’

D G SCOTT

JUDGE OF APPEAL

CONCUR:
LEWIS

JA
VAN HEERDEN
JA
MALAN

AJA
KGOMO

AJA

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

S A BREWERIES LTD AND SHOPRITE HOLDINGS LTD CASE
NO 476/06

From :
The Registrar, Supreme Court of Appeal
Date:
14  September 2007
Status:
Immediate

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

The Supreme Court of Appeal today upheld an appeal by S A
Breweries Ltd against a judgment of the Cape High Court which
had ruled that the determination by an expert of certain accounting
disputes between SAB and Shoprite Holdings Ltd was invalid for
lack of certainty.

The appeal was a sequel to an agreement between SAB and
Shoprite concluded as long ago as 31 October 1997 in terms of
which SAB sold its total interest in OK Bazaars (1929) Ltd to
Shoprite for the sum of R1.  The agreement made provision for the

preparation of closing date accounts in respect of OK Bazaars as
at 31 October 1997 and recorded that the balance sheet forming
part of the closing date accounts would reflect that the ordinary
shareholders’ funds of OK together with SAB’s claims against OK
which were ceded to Shoprite would amount to R540 000 000. The
agreement provided that in the event of the ordinary shareholders’
funds and the ceded claims being less than this amount SAB
would be obliged to fund the shortfall by way of a cash loan which
would form part of the claims being acquired by Shoprite.
During the preparation of the closing date accounts disagreements
as to a range of adjustments and provisions arose between the
parties and these were referred for determination to Mr Edwin
Oblowitz, a senior partner of Arthur Anderson who were then the
auditors of Pick ‘n Pay. In terms of the agreement Oblowitz was to
determine the disputes as an expert and not as an arbitrator and
his decision was to be final and binding.

The determination proved to be a disappointment for Shoprite. It
had claimed adjustments and provisions to the value of
R280 000 000 but those accepted were limited to R57 000 000
together with a contingent liability of R13 000 000.

Shoprite instituted proceedings in the Cape High Court contending
that the expert had breached his mandate by failing properly to
determine certain of the disputes between the parties. These
related to the calculation of the amount payable by SAB in respect
of unreconciled trade creditors and to an adjustment of the general
ledger in respect of fixed assets.

As to the issue of trade creditors, the SCA held that the expert had
provided answers to the specific questions put to him and that
Shoprite had failed to make use of a provision in the agreement
which entitled it to put follow-up questions to the expert. It was held
that in these circumstances Shoprite could not be heard to
complain that the expert had failed to fulfil his mandate or that his
determination lacked certainty. As to the issue of fixed assets, the
SCA held that the expert’s determination was directed at persons
with expertise in accountancy and that although the result was not
what Shoprite would have wanted, the determination would have
been clear to such persons, who would have known what was
required of them in order to make the necessary adjustments to
the closing date accounts.

- ends -